Blog – Abrahttps://www.abra.com Wed, 13 Mar 2019 19:16:34 +0000en-US hourly 1 https://wordpress.org/?v=5.2Fixing finance: How the technology powering Abra opens access to the world’s marketshttps://www.abra.com/blog/fixing-finance-how-the-technology-powering-abra-opens-access-to-the-worlds-markets/ https://www.abra.com/blog/fixing-finance-how-the-technology-powering-abra-opens-access-to-the-worlds-markets/#respondFri, 24 May 2019 23:48:02 +0000https://www.abra.com/?p=3386Now that crypto winter seems to be in full thaw, and the crypto headlines have turned to all-out-rally cries, it’s a good time to underscore some of the big picture crypto themes, and where Abra fits in. For many of the inbound crowd — to all the new crypto investors we welcome — crypto represents a once in a generation opportunity to invest in something that will change the world. But, when crypto prices are growing by double-digit percentage points a day, it’s easy to

]]>Now that crypto winter seems to be in full thaw, and the crypto headlines have turned to all-out-rally cries, it’s a good time to underscore some of the big picture crypto themes, and where Abra fits in.

For many of the inbound crowd — to all the new crypto investors we welcome — crypto represents a once in a generation opportunity to invest in something that will change the world.

But, when crypto prices are growing by double-digit percentage points a day, it’s easy to forget some of the major underpinnings of these innovative technologies.

It turns out that cryptocurrencies offer a real solution to a few major problems. To name just a few:

Open: cryptocurrencies allow anyone to participate. It doesn’t matter where you live, what kind of job you have, if you have a bank account, or if you are considered an accredited investor. Instead of all those criteria, crypto, for the first time, enables anyone with an interest and access to the internet the opportunity to participate in new forms of digitally-driven economic activity.

Security: Cryptocurrencies will make it safer and more secure to transact on the internet without a trusted third party.

Store of value: Cryptocurrencies are also creating a digital store of value that will rival traditional systems, which are based on precious metals and fiat reserve currencies.

Programmable money: Crypto is creating the infrastructure needed for the future of finance through innovative smart contract platforms.

Accessible: One of the biggest problems that cryptocurrencies solve is the ability to build blockchain-based infrastructure that is open and accessible to all. Ever since the early days of money, when kings and rulers used to print their faces on gold and silver to prove authenticity, money has been a concept based on permission and proximity.

Abra is using the programmable money features of the Bitcoin blockchain to create products that allow anyone in the world to get investment exposure to some of the world’s most dynamic and valuable markets.

The goal is to leverage the potential of blockchain and cryptocurrencies to create a single, easy-to-use financial app that provides open access to a large spectrum of investing opportunities.

Visualizing the future of finance

To better articulate some of the problems that Abra’s technology is solving we partnered with Visual Capitalist over the past several months to produce data-driven infographics. These graphics provide a high-level overview outlining some of the issues facing the current financial system and explain how the emergence of blockchain-based decentralized finance offers solutions.

Here’s a graphic look at the traditional financial system and the emerging decentralized alternatives:

]]>https://www.abra.com/blog/fixing-finance-how-the-technology-powering-abra-opens-access-to-the-worlds-markets/feed/0Making money easierhttps://www.abra.com/blog/making-money-easier/ https://www.abra.com/blog/making-money-easier/#commentsThu, 09 May 2019 12:00:50 +0000https://www.abra.com/?p=3369A new partnership with Plaid and withdrawal support for more cryptocurrencies The road to cryptocurrency mass adoption will be paved by technology and design that makes moving money easier. In that spirit, starting today Abra is making it easier for users in the United States to convert USD to crypto by connecting and being able to seamlessly transfer funds to the Abra app. This greater ease of use is thanks to a new banking integration made possible by the San Francisco-based fintech company, Plaid. Plaid

]]>A new partnership with Plaid and withdrawal support for more cryptocurrencies

The road to cryptocurrency mass adoption will be paved by technology and design that makes moving money easier.

In that spirit, starting today Abra is making it easier for users in the United States to convert USD to crypto by connecting and being able to seamlessly transfer funds to the Abra app.

This greater ease of use is thanks to a new banking integration made possible by the San Francisco-based fintech company, Plaid.

Plaid makes it easier for people to connect their bank to financial apps, like Abra. For Abra users, the Plaid integration means that now thousands of banks are easily compatible with the Abra wallet.

“With today’s announcement, Abra is taking yet another step closer toward our vision of democratizing access to financial services for our hundreds of thousands of customers around the globe,” said Abra founder and CEO Bill Barhydt. “The addition of these new liquidity enhancements in our app gives users more ways to move between crypto and fiat. We’re particularly excited about our partnership with Plaid, which brings thousands of additional financial institutions into the Abra ecosystem for US customers.”

Enabling easy withdrawal of 30 cryptocurrencies

Along with the new Plaid integrations in the United States, Abra users everywhere will also have the ability to now withdraw more of the cryptocurrencies held in an Abra wallet to supported external crypto wallets.

The goal of these integrations and upgraded functionality is to make the investment and use of cryptocurrencies more fluid and easier to access for more people all over the world.

The Abra team is also working hard to create the ability to easily deposit your favorite cryptocurrencies directly into an Abra wallet.

Please note: This latest withdrawal news is best characterized as synthetic withdrawal. In the background the synthetic asset is being held as bitcoin, so the withdrawal is subject to a bitcoin network fee. Looking for more info? Check out this FAQ.

And there are lots of other exciting announcements coming soon. Stay tuned!

]]>https://www.abra.com/blog/making-money-easier/feed/8Your keys, your cryptohttps://www.abra.com/blog/your-keys-your-crypto/ https://www.abra.com/blog/your-keys-your-crypto/#respondWed, 08 May 2019 21:21:19 +0000https://www.abra.com/?p=3364Abra is based on a non-custodial wallet architecture, which makes Abra wallets more secure than most other alternatives. As we have written about before: “A non-custodial wallet fully leverages the power of permissionless blockchain technology, which enables peer-to-peer transactions without the need for an intermediary.” Non-custodial wallets are more secure because they create a less focused attack surface, while wallets that are custodial — meaning users funds are stored in a big, centralized database — are creating massive targets for hackers. Hacking a centralized exchange or

]]>Abra is based on a non-custodial wallet architecture, which makes Abra wallets more secure than most other alternatives.

As we have written about before: “A non-custodial wallet fully leverages the power of permissionless blockchain technology, which enables peer-to-peer transactions without the need for an intermediary.”

Non-custodial wallets are more secure because they create a less focused attack surface, while wallets that are custodial — meaning users funds are stored in a big, centralized database — are creating massive targets for hackers.

Hacking a centralized exchange or wallet is like trawling the ocean for fish with a net versus a wallet like Abra, which is like fishing with a rod in the bathtub inside a locked house inside a locked compound with security guards on every corner.

The structural vulnerabilities are often revealed after massive structural failures happen — like the recent $40 million hack of the Binance exchange — when hackers are able to lift a massive amount of funds with one fraudulent operation.

“People don’t really think about the difference between a custodial and non-custodial wallet until they have been hacked,” says Abra founder and CEO Bill Barhydt. “Once you’ve been hacked, you get it. But by then, it’s too late.”

The hackers had the patience to wait, and execute well-orchestrated actions through multiple seemingly independent accounts at the most opportune time. The transaction is structured in a way that passed our existing security checks. It was unfortunate that we were not able to block this withdrawal before it was executed.

What this means is that Binance — and other centralized exchanges for that matter — hold their users’ assets in what amounts to little more than an internet-connected database. This structure lends itself to a wide range of security vulnerabilities, including social engineering, phishing, malware deployment, and others.

Centralized exchanges and wallets often use SMS for two-factor authentication which makes those accounts vulnerable to SMS hacks. With a non-custodial wallet like Abra this style of attack is not possible.

Blockchain-based security

The alternative to hack-prone centralized exchanges is the kind of non-custodial model used by Abra.

Bitcoin was designed so that people could use the internet to perform transactions without the need to involve a trusted third-party. The whole point of blockchain technology is to provide the infrastructure to allow for secure transactions to take place without having to trust centralized databases or financial service providers.

“We built Abra as a non-custodial wallet because we want all Abra users’ assets to be as secure as possible,” Barhydt says. “The full value of cryptocurrencies like bitcoin isn’t realized if people are still trusting centralized exchanges to custody and control their funds.”

Rather than use a vulnerable, centralized database for accounting and settlement, Abra uses the Bitcoin blockchain.

If an Abra user loses their recovery phrase, there is no way for Abra to regain access to their funds. This can obviously lead to frustration and disappointment if an Abra user loses their recovery phrase and wasn’t fully aware of the implications of using a non-custodial wallet.

But by following a few best practices (which users are prompted to do when they are first creating a wallet) to secure their recovery phrase, Abra users can then take full advantage of having a safe and secure wallet.

Non-custodial wallet as a fundamental right

Decentralized alternatives to the traditional financial system hold the promise of universal access to financial services and products (like the ability for anyone, anywhere to have the same public market investing opportunities).

Decentralized finance also replaces middlemen with blockchain. By replacing corporate and bureaucratic layers that cost time and money with blockchain as an accounting and settlement layer, decentralized finance will be easier and more cost effective.

“We will only be able to realize the full potential of decentralized finance through non-custodial services that fully secure and protect users from large-scale hacks,” Barhydt says.

]]>https://www.abra.com/blog/your-keys-your-crypto/feed/0Crypto Bites: Chat with Tim Draper and Adam Draperhttps://www.abra.com/blog/crypto-bites-chat-with-tim-draper-and-adam-draper/ https://www.abra.com/blog/crypto-bites-chat-with-tim-draper-and-adam-draper/#commentsMon, 29 Apr 2019 18:37:28 +0000https://www.abra.com/?p=3271Abra founder and CEO Bill Barhydt recently sat down with Tim Draper and Adam Draper to record an episode of Crypto Bites. The conversation covers venture capital and bitcoin investing, as well as some thoughts about the future of the crypto space. The following transcript of their conversation has been lightly edited. Welcome Bill Barhydt 00:07 Hey, everybody, welcome to a special edition of Abra’s Crypto Bites. We are at Draper University’s Hero City in San Mateo, just south of beautiful San Francisco. I’m super excited

]]>Abra founder and CEO Bill Barhydt recently sat down with Tim Draper and Adam Draper to record an episode of Crypto Bites. The conversation covers venture capital and bitcoin investing, as well as some thoughts about the future of the crypto space.

The following transcript of their conversation has been lightly edited.

Welcome

Bill Barhydt00:07

Hey, everybody, welcome to a special edition of Abra’s Crypto Bites. We are at Draper University’s Hero City in San Mateo, just south of beautiful San Francisco.

I’m super excited to be … I call you guys, the first family of venture capital. Is that okay?

Tim Draper: 00:24

Sure. I mean we’ve been called worse.

Barhydt: 00:27

Yeah, I mean it’s —

Adam Draper: 00:29

That’s on the positive side.

Barhydt: 00:31

It’s early morning, so I don’t know if you mean today or if you’re —

Tim Draper: 00:34

That’s certainly better than the second.

Barhydt: 00:35

Okay, there you go. Tim Draper, Adam Draper, super excited to have the opportunity to talk to you guys.

I’m going to forgo introductions as to who you are. Everybody out there, I promise you, knows who you guys are. I just want to get right into it.

Adam Draper: 00:50

Great.

Philosophy on venture capital and investing

Barhydt: 00:52

I want to talk about three things with you guys, today. I want to talk about your philosophy on venture capital and investing, where you agree, where you differ. Hopefully, we’ll mix it up a little bit.

I want to get into crypto, bitcoin. You guys have a lot of investments in that space, both in bitcoin itself as well as companies. Who you’ve invested in and why?

And then lastly, where we think it’s going? Where is the space going? What’s missing for getting broad-based adoption? Is it a function of time? Or are there specific things missing? And would love to get your perspective on that.

Let’s get into it. Let’s talk about investing. You’ve been at it for … how many decades?

Tim Draper: 01:26

33 years.

Adam Draper: 01:28

Oh, I’ve been rounding up when I talk to people. I say 35 for you.

Tim Draper: 01:31

Oh, okay.

Adam Draper: 01:32

Is that okay?

Tim Draper: 01:33

Well, it probably is because I started before I started.

Adam Draper: 01:36

Okay, good. So 35.

Barhydt: 01:37

Okay, and your father is a famous, infamous venture capitalist as well, right?

Tim Draper: 01:43

Yeah, and when I started my firm, I went to get an SBIC loan. I was 26 years old and they said, “Well, you need 10 years investment experience.” I said, “Well, I’ve been investing since I was 10.” And the guy looks at me and goes, “Check.”

Barhydt: 02:04

All right. There you go.

Adam Draper: 02:04

That has changed.

The SBIC loan…now they have a 100 documents that you have to fill out.

Barhydt: 02:09

I see. So it’s not: check, check, check.

Tim Draper: 02:11

It’s not the best now. But it sure was then.

Getting started in venture capital

Barhydt: 02:12

And how long have you been at this?

Adam Draper: 02:14

So I’ve been investing for about eight years as a venture capital or angel investor. I mean, technically, since I was about six.

Barhydt: 02:24

I was going to ask you —

Adam Draper: 02:25

He started me on buying the penny stocks on a … we would go through the newspaper and it’d be like, “What do you want to buy today?”

Barhydt: 02:32

Now did you get-

Tim Draper: 02:32

They were the most volatile. Of course, they lost all their money on it.

Barhydt: 02:35

Right. Did you get exposure to venture deals as a kid?

Adam Draper: 02:39

Around the dinner table, my dad would bring home stories of … I don’t know what other families brought home stories of, but we got stories about Skype growing, Skype’s network effect, and Hotmail’s network effect. Both network effects on communication for the internet.

So yeah, I think it was just osmosis. It wasn’t like … It was just such a big part of his life that we learned through him.

Barhydt: 03:09

I had a conversation with one of my teenagers two nights ago where he’s a little interested in bitcoin, not really there yet, but is super interested in the lore of Silicon Valley for some reason.

He started asking me a million questions about when I was working on Plaxo with Sean Parker, and he thought that was amazing. He was going to go brag to his friends-

Tim Draper: 03:29

Plaxo should have done much better. I don’t know why that didn’t.

Tim Draper: 03:34

I mean, how many times I’ve gotten the wrong email address because Plaxo doesn’t exist. It just kills me.

Barhydt: 03:41

Amen. Well, let’s do another podcast on why Plaxo failed.

Tim Draper: 03:45

Actually, I have four children and three of them have become venture capitalists.

Barhydt: 03:47

That’s awesome.

Tim Draper: 03:49

I must’ve gotten them excited at the dinner table.

Barhydt: 03:52

Do you feel that you have overlapping philosophies on venture capital? Or when you look at … I’ll ask you first, and then I’ll look at you … you chime in.

When you look at your kids who are also in venture capital, or if I was to ask your father the same question about you, do you feel that you have any overlapping philosophies on venture? Or do you feel that you’re just totally different?

Tim Draper: 04:11

Oh, there is a lot of overlapping, but it’s really fun to see how each of them has decided to go.

Tim Draper: 04:18

Adam, he can speak for himself, but generally, going after science fiction. My daughter, Jessie, she does Halogen Ventures, she only backs women.

Bill Barhydt: 04:30

Wow.

Tim Draper: 04:31

And my son, Billy, does Pace Ventures and that’s only brand.

He’s going after consumer and brand. Technology, too, but consumer and brand.

So it’s interesting, they’ve kind of … the branches have grown.

Barhydt: 04:49

Now, and when they’re raising … I mean, you have to raise all the time. We talk about it. I’m guessing you used to, but you probably do less of that now.

But when the kids are kind of raising for the first time, do they come to you and say, “What do I do?” Do they intuitively know what to do?

Tim Draper: 05:03

Weirdly, none of them have come to me for advice.

Barhydt: 05:07

Wow.

Tim Draper: 05:09

None of them. I say, “Hey, I can help. Here.” You know, I sent out, I said, “Here’s a bunch of my wealthy friends, you want to go to go talk to them.” They go, “You know dad I got my own network.”

Barhydt: 05:20

That is amazing.

Tim Draper: 05:22

Yeah.

Adam Draper: 05:22

I think originally it started as this try it our own before … I do come back, and I work in the same building as my dad. I go up sometimes when I have a hard to decision to make and say, “What’s the right direction?”

He gives me one answer, and then I go to my grandfather, and then he gives me the other answer. Then I have to figure it out.

Investing in big ideas

Barhydt: 05:42

How often do you get the same or overlapping answers?

Adam Draper: 05:47

By the way, I’d say the thing on the venture take, at the base of everything is like we always focused on people who were building things.

My grandfather is incredible with humans, human beings. That sort of, I would say it’s transcended the generations where it’s just sort of we know that at the end of the day it’s the person that’s going to be able to build and change the world.

Yes, we have different takes on the direction the world is going, I’d say that’s why we back different things. I focus very much on hard technologies and movements that you read about in Ender’s Game or Harry Potter.

Barhydt: 06:34 Yeah.

Adam Draper: 06:36

My dad has a … I would say we both also, my dad and I, the similarities are the things where it’s like, we are good where there’s regulatory uncertainty. We see a lot of opportunity where that is.

Barhydt: 06:51

We don’t have any of that at crypto.

Adam Draper: 06:52

Yeah, none of it.

Tim Draper: 06:55

Yeah. Why interview us?

Adam Draper: 06:57

Yeah, why? But that’s where we find the largest opportunities. And so my dad is just good naturally at … I don’t know if we’ve ever called it regulatory uncertainty, but that’s where the most growth happens.

So financial markets. You wouldn’t have guessed that in 2008 that would have been the best time to start investing in FinTech.

Barhydt: 07:19

Sure, turned out to be.

Adam Draper: 07:20

My dad decided to just throw basically everything at fintech. You know he backed a bitcoin, but he also backed Carta and all those things.

Tim Draper: 07:31

Yeah, all those things.

Adam Draper: 07:33

Robin Hood, Carta —

Tim Draper: 07:34

Coinbase, he was in it first.

Adam Draper: 07:35

I did it and then he … but yeah, so —

Barhydt: 07:38

Interesting.

Tim Draper: 07:40

I would say it a little differently, but I like the way he said it. I would say what we all I think we all do is think, “What if it works?”

“How great is this if it works?” We’re not all concerned about what could go wrong, because plenty of things can go wrong along the way.

But what if it works? Is it really going to be transformational? Is it going to really change the whole nature of finance? Or the whole nature of healthcare? Or the whole nature of government? We look and say, “Well what if it works? This would be awesome.”

That’s where the entrepreneur does keep ahead of the regulations because they —

Adam Draper: 08:20

They help create it.

Tim Draper: 08:20

They helped-

Adam Draper: 08:20

Hugely. Abra helped create it.

Barhydt: 08:22

Trust me, I could give you a million stories of the battles that I fight, or choose not to fight. It’s half my day, for sure.

Tim Draper: 08:31

Our sympathy.

Barhydt: 08:34

I asked for the job. Okay, so I want one example of where you went to dad and grandad, and said, “What do you think about this deal?” Both said no, and you did the deal.

Adam Draper: 08:45

Okay. It wasn’t about a deal specifically. I’m going to give you what both my dad and grandfather said about bitcoin.

Okay. First my dad actually, I think timeline wise, you invested in the bitcoin company before I did.

Tim Draper: 09:02

Yeah, but the wrong one.

Adam Draper: 09:03

Yeah, and I backed one of the right ones.

Barhydt: 09:05

I’m guessing I know which one.

Adam Draper: 09:06

Yeah and then I … But then over … I went to my dad and my grandfather and I was saying, “Well you know this bitcoin thing, it’s really interesting. What if we could have digital money?”

My grandfather … so my dad was already in, but it was sort of, “Is this market going to grow? I’m experimenting.” My grandfather said, “No.” He just straight up, “Absolutely not, don’t get into this. You need a government for money.” That was the hands down.

My grandfather, I’d never heard him actually disagree-

Tim Draper: 09:51

He worked for the government.

Adam Draper: 09:51

And he worked for the government though. He worked for a long time.

But then the greatest part of that is that over the course of time, I decided to go at bitcoin full on. We were the first fund ever to say, we’re going to back bitcoin. That’s how we connected originally.

We’ve now backed about 100 crypto companies. But the greatest thing, he sent me an article about five years later that bitcoin was at the top of the headline. It was about how Goldman Sachs was doing something with bitcoin. He said, “Hey, you were right.”

Barhydt: 10:25

That’s it. So you get the same one line — from your grandfather that we do from the venture capitalists. That I love.

Adam Draper: 10:33

Yes.

Barhydt: 10:34

That’s the best tidbit so far.

Tim Draper: 10:35

As long as they say, “You were right.”

Adam Draper: 10:39

Both my grandfather and my dad both just quick little emails. Yes.

Biggest lesson learned as a venture capitalist

Barhydt: 10:44

All right. Quick before we get into bitcoin. Biggest learning so far as a venture capitalist, angel incubator? Anything you want.

Not necessarily like … So first off, rules are definitely broken all the time. My new thesis is irrational people doing rational things works. And rational people doing irrational things works.

So anyone in the bitcoin community that’s been relatively —

Tim Draper: 11:24

How about irrational people doing irrational things?

Adam Draper: 11:27

I don’t know.

Tim Draper: 11:28

That’s where you get into big trouble.

Adam Draper: 11:29

That’s the trouble, but maybe there is a crazy outlier. But it’s sort of like one of these things where the rational markets, they need someone to come in and be a little irrational to be able to actually break things.

Where the rational people going after irrational things, it’s almost like a good background, like someone who worked in remittance at Boom Financial. Then is literally leaving their company to join this cryptocurrency thing that is anathema to the entire financial market.

Barhydt: 12:02

Sure, it’s more of a movement than anything else.

Adam Draper: 12:05

To join a movement, that’s a seemingly rational, seemingly rational person doing an irrational thing. So that’s sort of my new thesis.

I would say at the end of the day, optimists win. You need to be able to say what if? You have to be able to say … It’s really you want to be pursuing your own mission.

Everyone thinks they’re competing with other people and the entrepreneur’s really competing against themselves in their own market. It’s a full self-discovery thing. It’s not a-

Barhydt: 12:44

As a longtime entrepreneur, I would say any CEO not in therapy is missing —

Adam Draper: 12:50

They’re not doing it right.

Barhydt: 12:51

I will tell you, I have no problem with admitting that. Certainly coaching-

Tim Draper: 12:55

You know there’s a guy who specializes —

Yosi Amram specializes as … He went through it, he was an entrepreneur. He went through this big thing. He took it public and then he got pushed out by other political CEO.

Tim Draper: 13:12

Then he said, “Oh, my god, this is tragic to me emotionally.” He decided that what he would do was he would be the shrink to the stars.

Barhydt: 13:24

When you’re dealing with the fourth thing that didn’t work on the way to the ninth thing that might work, the self-doubt..it just percolates. As a 50-year-old CEO, I’m old enough now where I know that okay, I’m past that. But as a 30-year-old CEO, it was horrible.

Adam Draper: 13:44

I’d say there’s a great quote from a movie. It was, “In my 20s, I knew everything. In my 30s, I realized I didn’t know anything.”

Tim Draper: 13:56

In your 40s, you’re right.

Adam Draper: 13:58

About both.

How investing has changed through the decades

Barhydt:13:59

All right. I’m going to ask the question a little bit differently. So you lived through the dot com era, some fantastic exits. You’ve seen social networking and now bitcoin/blockchain.

How are things different in your world of venture now? Versus in the 90s? And then through the Google, Facebook years?

Tim Draper: 14:18

Well, I think that the consolidation around the best tokens. Bitcoin, Ethereum, there’s a big consolidation around those. And the innovative tokens. That same thing happened during the dot com period.

Because there were some amazing people going, “Hey, pets.com or whatever.” It was a big, lots of these that kind of came up, raised a bunch of money, and then disappeared.

So similar thing happened in the token world. But then there was the rise of the real. The rise of the great technologies. The rise of the really interesting things.

So with bitcoin, you’re seeing the rise of the people around bitcoin doing interesting things. The OpenNode and the Lightning Network. Realizing, “Hey, we found something. We found an interesting opportunity, let’s run with it.”

Around Ethereum, there are also a lot of those interesting things happening. The payment for better or more honest journalism, that kind of thing. Interesting things happening around those.

Then there are a bunch of these that didn’t really happen. But then there’s some surprises. Like wow, look, the data wallet. Or whatever. That are coming up and people are going, “Wow, look at that. That was interesting.” It’s a new application.

A lot of it has to do with who are the people behind that? How driven are they? It’s just like entrepreneurship all the way through. People who are working really hard and doing really great things and they stick with it and they go for the long haul, those are going to be the ones that win.

First investments in bitcoin space

Barhydt: 16:17

Yeah. So on that note, what was your … beyond bitcoin itself, which I know you’re both holders of. So am I. But what was your first corporate investment in the bitcoin space? Which company did you invest in first? Do you remember?

Adam Draper: 16:32

I bought, I invested before I bought bitcoin.

Barhydt: 16:36

Oh, interesting. Okay.

Adam Draper:16:37

It was from Brian Armstrong, the CEO of Coinbase, pitched me at a coffee shop. I ended up investing because of people like you, where I met every single person I met was the most dynamic person I had ever met. I was like, whether or not, this is a crazy idea. This is a rational person doing an irrational thing.

Adam Draper: 17:03

So I ended up investing in Brian, in a seed round. Then about … actually it wasn’t for another four months, did I actually buy any bitcoin.

I remember when I actually had finally signed the docs with Brian and I invested money. You’re holding the piece of paper and he said, “Oh, do you want to buy bitcoin on our platform?” I was like, “I just gave you a bunch of money, man. Hey, man, I know that you’re trying to do what’s right for you, but seriously?”

That is the time I look back on as I should’ve just done it. Because the price around eight bucks or something.

Tim Draper: 17:49

Mine was CoinLab, which was well before that. But it was an investment where it was still totally the wild west and it would seem to be kind of interesting. They were in the catbird seed, but they hadn’t picked a good direction yet.

Then with him, I said, “Well, I also want some bitcoin.” So different situation.

“Here’s some money. Get me some bitcoin.” He said, “Okay, we’ll take that money, get a chip, and mine the bitcoin. And you’ll get it at an even cheaper price.”

Okay. Well, then the chip never arrived for months.

Barhydt: 18:33

That’s a problem.

Tim Draper: 18:33

And months and months.

Barhydt: 18:35

And the price is going up and up and up.

Tim Draper: 18:36

And the chip … well, the people who were making the chip were doing some mining of their own. So we got front run.

Then finally he got it, the bitcoin had gone from four to 36 by the time he finally got it. So then he mines a bunch of bitcoin and I’m saying, good, I got some bitcoin.

He stores it in Mt. Gox and it was gone. So I had a very different experience. The reason I bought all the bitcoin in the big auction was first I didn’t think I was going to get it all, but I did.

I think I’m the only one who bid above market for all the [soco 00:19:14].

But it only dropped a little, so I did a lot of research and said, oh, wow, all of these interesting applications. This is going to replace all the fiat money. I didn’t even know the word fiat, except for the car.

Barhydt: 19:47

Right.

Tim Draper: 19:48

So the political money, the money that’s tied to politics, this is going to replace all of it. I got very excited about it.

So when the auction came, I thought, well, the upside’s super high. If I bid a little bit lower, I get a slightly better deal, who cares.

So I think I may have been the only one who bid above market and I got all the lots. Like okay. It was more than I wanted.

Barhydt: 20:17

Careful what you ask for, right?

Tim Draper: 20:19

But now I’m good.

Barhydt: 20:20

That’s awesome. that’s awesome. Wow, okay.

Tim Draper: 20:23

I’m good.

Barhydt: 20:25

All right. So since then, obviously Coinbase has turned out-

Draper: 20:29

So we both invested in companies before we bought bitcoin.

Barhydt: 20:31

Yeah, I would never have guessed that.

Adam Draper: 20:33

Yeah, so that’s wild. Because if someone-

Barhydt: 20:35

You didn’t know that? You both didn’t know that —

Adam Draper: 20:37

No, we didn’t realize that.

Tim Draper: 20:38

We didn’t think about that.

Barhydt: 20:38

You guys are learning a lot about each other.

Tim Draper: 20:39

You bring it all out.

Investing in the emerging cryptocurrency industry

Barhydt: 20:40

All right. So companies first, bitcoin soon after. Since then, you’ve done a tremendous amount of investing in this space, both of you, right? I mean you have a fund dedicated to that and I believe you’ve done many corporate investments, venture investments since then.

So beyond Coinbase, which congratulations, what is the investment that you’ve made in the last 18 months that you’re most excited about in the crypto space?

Adam Draper: 21:05

You mean Abra?

Barhydt: 21:07

Besides Abra. We’ll give you that one.

Adam Draper: 21:10

Let’s see here. You know the things that have worked up til now, so it’s gateways. It’s the onboarding experience, Abra, Coinbase, all these things that allow the people who are not in the digital world, to get into the digital world with digital money.

I think that the next sequence is going to be … well, first, in that digital world, we need data.

And understanding that data is going to be really important, indexing that data’s going to be very important. We backed Etherscan. I would say that that’s one that I’m really excited about because it’s sort of a below the radar.

Barhydt: 21:48

Explain Etherscan.

Adam Draper: 21:50

So Etherscan is you can check and validate a transaction when an Ethereum moves from one wallet to another. You can see when smart contracts settle.

Almost every product uses their API to be able to alert. Every product uses them. And no one really realizes that they’re sort of beneath the surface of everything.

Maybe I shouldn’t even be saying that, maybe that’s their goal.

So Etherscan, once you’re in, it’s important to index all that information. So it’s sort of like the internet. With the internet, it was important to get onboarded to the TCP/IP, which was through like Netscape.

But then once you’re in, indexing all the information, like Yahoo and Google did, ended up being one of the most important pieces of the internet.

So I still think that that’s really important. Then it’s just about use cases and getting people to use it. So the other thing I’m very excited about are user interfaces, which seems very obvious … not obvious, seems a little lighter way. Because we’ve talked about protocols and daps, which are peer to peer networks, so long in this stack of the decentralized world that I’m really excited about the thing that the consumer interacts with.

So there’s this new stack of … there’s a user interface and there can be millions of user interfaces that are built on top of a peer to peer network. The stack that I see the most of is … right now it’s Augur is live and Ethereum’s live. So people are building user interfaces on top of both of those.

So they’re creating an interface that just makes it easier to globally gamble. So you could have a … you could be managing the book of everyone in the world, which is sort of a fascinating concept. Again, regulatory uncertainty.

I think that right now it’s about figuring out the true use cases and why? Why is decentralized better?

Because a lot of the times that we’re talking about decentralized products, the why is why do you need a slower database? Why do you need permanent file storage? Why are those things important? A lot of the times, it’s not.

I think that’s the thing that I want people to get, is it’s good for some things and not good for others. Let’s play to the things that it works for.

And assets. I would say assets are … that’s going to be a really big deal.

Barhydt: 24:35 What do you mean by assets?

Adam Draper: 24:36

I don’t know. Everyone talks about STOs, so the security token offerings. So auctioning off pieces of this building would be really, really cool.

But the killer app of the entire decentralized world is global. That’s it. If you’re not doing it globally, you’re doing it wrong.

So the reason that I think Guesser’s interesting is you could be peer to peer betting with someone in a different country.

So I would say me being able to buy … actually, this is sort of what Abra’s moving towards. But being able to buy shares of Apple, or being able to buy shares of … where it hasn’t been enabled in a lot of different countries, that’s the exciting stuff.

Barhydt: 25:18

That’s right, I agree. The way I look at it is decentralization comes at a tremendous cost in transaction inefficiency, energy, user experience, because you got to know what a private key is. If you don’t need that, you’re really wasting a lot of time.

Adam Draper: 25:31 Yeah.

Barhydt: 25:32

There are very few applications that really need that. Turns out finance definitely needs it. We’ll see, as it relates to other applications.

Barhydt: 25:39

But as a segue, so entrepreneur or a company that you’ve invested in in the crypto space that you remain super excited about?

Tim Draper: 25:47

Oh, we’ve recently invested in OpenNode. I think that they are going to make it a lot easier for retailers to just take bitcoin. Once that starts to happen, then it starts spreading.

Barhydt: 25:59

So explain OpenNode.

Tim Draper: 26:01

Well, they use … okay, here’s bitcoin, the blockchain, and it’s kind of slow. Here’s the Lightning Network and it is off chain making a bunch of transactions and then pulling them back into the slow node. Right?

Well, OpenNode is the interface to that Lightning Network to bitcoin.

Barhydt: 26:26

Super interesting. So they’re basically trying to be the POS for crypto with instant payments that bitcoin itself can’t manage?

Tim Draper: 26:33

They’re going to make it very easy for anybody to move money anyway through bitcoin. I think it’s going to really have an impact on bitcoin.

But the thing I was thinking, I got to tell you, which was I was in Argentina and I met with the Argentinian president and I made him a bet. Because bitcoin was at 10,000 when I saw him last. That was two years ago.

Barhydt: 26:59 Okay.

Tim Draper: 27:00

It had just hit 10,000, so I was kind of riding high because I’d predicted that.

The peso was at seven and a half cents. So I came back and I said, “Well since we saw each other, bitcoin’s fallen to 4000. But the peso’s fallen to two and a half cents.”

I said, “So I’ll make you a bet. If the peso does better than bitcoin over the next year, then I owe you a bitcoin. And I will double my investment in Argentina.” I’ve made some investments in Argentina.

He said, “Okay, okay.” I said, “But if bitcoin’s more valuable than the peso, then you owe me the equivalent in pesos and you have to make bitcoin a national currency.”

Barhydt: 27:48 Oh, so what’d he say?

Tim Draper: 27:51 He looks at me and he goes, “God, these crazy guys that come into my office.” Then I said, “Like Japan did.” And he went, “What?”

I said, “Yeah, call the Japanese president, figure out what he did and do that.” He turns and he goes to his minister, “We got to do this, set that up.”

So that was exciting.

Then I thought one other thing, which was interesting. This is going to get into this competitive governance thing that I like. I said, “And forget about fixing the roads, the real estate guys are going to do that when all of the economy starts moving to you.”

And he said, “Just because of bitcoin?” I said, “No. Take your infrastructure money and put in 5G because your internet sucks.” I didn’t say sucks. “Internet is poor here. I’m in this great hotel and you have horrible wifi.”

“So please do this.” Then think of all the entrepreneurs that are going to go, “I’m going to Argentina. I can operate in bitcoin. I get 5G wifi or 5G straight in.” And they’re trying to make a move. So let’s hope he does it.

Barhydt: 29:07

Yeah, we have developers at Abra in Argentina and they are the most passionate, most incentivized to see this work. Versus anyone I’ve spoken to. Except maybe some folks in China. But other than that, they get it.

Tim Draper: 29:18

Well, the Chinese are getting a little depressed because their government has clamped down and makes everything illegal.

Japan responded to that by making bitcoin a national currency and showing how an ICO would work in Japan. They just laid it out.

Barhydt: 29:35

Yeah. So I think we are going to see in the next 10 years, some country really push bitcoin as either a primary or backup reserve currency. It’s going to happen.

Tim Draper: 29:50

I think in 10 years, a lot of these borders are going to dissolve and the governments are going to compete for us in a virtual way.

There’d still be some physical government that’s sort of tied to police or whatever. But then there’s going to be this virtual governing and that can be coming from anywhere.

Barhydt: 30:10

That’s right.

Tim Draper: 30:10

So I’m pretty optimistic that the world’s get … becomes one big, flying —

Tim Draper: 30:16

What did you call it? A golf ball? A golf ball flying through the —

Adam Draper: 30:20

I said we’re a rock.

Tim Draper: 30:22

We’re on a rock.

Adam Draper: 30:24

Hurtling through space, yeah...

Adam Draper: 30:26

And we’ve divided up our countries by these arbitrary —

Tim Draper: 30:29

It’s actually very it’s more like a pool ball.

Adam Draper: 30:29

Yeah.

Tim Draper: 30:31

It’s very smooth.

Barhydt: 30:32

Yeah. All right. Well, either way, I hope it happens.

A bitcoin standard

Adam Draper: 30:36

I like the reserve currency. I like the idea of … because countries have been backed by gold in the past, but then they go off the gold standard, doesn’t make sense anymore. Bitcoin —

Tim Draper: 30:45

Oh, go on the bitcoin standard.

Adam Draper: 30:47

Bitcoin standard.

Barhydt: 30:48

Well, that’s the book, right? Saifedean’s book, if you haven’t read it, and I would say this to everybody listening and watching, the best book by far on this topic is called “The Bitcoin Standard” by Saifedean Ammous. I always screw up his name. But brilliant guy, love the book.

The first third of the book talks about why we screwed up vis-à-vis coming off the gold standard, in terms of basically eroding everybody’s personal net worth. Why bitcoin is the best opportunity that we’ve ever seen to get back to that. And what happens to fiat currencies over time.

If you look at the graph of the hyperinflation of the Argentinian peso, or the Venezuelan bolívares over time, it looks like QE1, two, and three. Right? Probably the only difference is the dollar status as a reserve currency is saving us right now. That’s not very encouraging.

But at the same time, bitcoin didn’t exist 10 years ago, but we can actually measure its relative weighting versus global GDP. That’s insane. For a concept that didn’t exist 10 years ago. So maybe we’re on our way.

Tim Draper: 31:53

That would be really interesting.

People have asked me, “Well, so, is bitcoin the gold standard for crypto?” And I said, “Why would you compare bitcoin, this forward-thinking, incredibly exciting, dynamic new thing, to gold? Something we use to transact business in the 1200s?”

Adam Draper: 32:16

Like pirates. I always think of pirates. Like yeah.

Tim Draper: 32:20 Arr.

Barhydt: 32:20

Yeah, exactly.

Tim Draper: 32:23

I’m thinking, gold standard? Where do you get off thinking that that’s gold? Gold is like so far weird commodity.

Barhydt: 32:31

So we’ve painted this picture of where we think this could be, back to your question of hey, what if this works? As investors, I think that’s awesome.

What will it take to achieve crypto mass adoption?

Barhydt: 32:38

What is it going to take? Let’s talk about part three now, what is it going to take to get us there? What’s missing? Why isn’t everybody using this? Is it something that everybody should just adopt?

Tim Draper: 32:46

That’s why OpenNode sounds exciting.

It’s the same kind of thing. Why does … I think it’ll also take Coinbase becoming the standard bank. Where you don’t have all the … All these banks are doing a lot of making a lot of noise as they slowly disappear into the sunset. While these cryptocurrencies are rising.

As they rise, and more and more of us have Coinbase accounts, and maybe we’re working with OpenNode with a retailer, maybe we’re … It’s going to be spreading and we’re going to hardly notice that it happened. It’ll just happen.

Barhydt: 33:30

So do you think-

Tim Draper: 33:31

Suddenly we’ll be at Starbucks and they’ll be going, “Oh, yeah, you can pay in bitcoin.” Then two years later, you’ll try to pay in Starbucks with dollars and they’re going to laugh at you.

Adam Draper: 33:43

Well, what I love is Sweet Greens you can’t take cash anymore.

Barhydt: 33:46

Okay.

Adam Draper: 33:47

There are more and more no cash places.

Barhydt: 33:50

Yup.

Adam Draper: 33:51

Although in New York there are tons of cash places. I don’t know what their deal is. But I don’t have cash, so it’s very difficult for me to operate in New York, it turns out.

Tim Draper: 34:01

New York is a time machine.

Adam Draper: 34:02

Yeah.

Tim Draper: 34:02

You go back in time-

Adam Draper: 34:03

But there are a couple of these little places, so I have to go to branded places that exist outside of New York to …

Barhydt: 34:09

But in the same vein, what do you think the path is? What do you think is missing for broad base adoption of crypto? Either —

Tim Draper: 34:16

If I’m Lucas Film right now, I’ll tell you, I would save a fortune by just paying those 15,000 people at the credits, all the credits that run down after Star Wars?

I would just say, “Everybody gets a wallet. Here’s your bitcoin wallet number, blah, blah, blah.” Then you’re … they send … Adam gets checks for 25 cents every month or so because … or every quarter.

Adam Draper: 34:44

We were both on Nickelodeon.

Barhydt: 34:46

Oh, yeah.

Tim Draper: 34:46

We were on a Nickelodeon show.

Barhydt: 34:47

So you’re getting residuals.

Tim Draper: 34:48 Yeah.

Somebody spends seven dollars and 50 cents —

Barhydt: 34:52

To send you the check.

Adam Draper: 34:52

It’s like 10 bucks I think.

Tim Draper: 34:53

To send us a check.

Barhydt: 34:54

Right, right. So now there’s a company, I don’t know if you’re familiar with Payoneer, they basically ship debit cards I think out of the Caribbean or Central America somewhere, to workers in Russia who basically are doing offshore work, but need to get paid. So they’ll basically do a deposit on the prepaid debit card.

But my understanding is when you look at the foreign exchange fees, the ATM fees, the network fees, they’re paying upwards of 10 to 15 percent just to get their income.

Tim Draper: 35:17

Right.

Barhydt: 35:17

This isn’t a migrant worker we’re talking about, this isn’t Mexican farmers getting raped on fees, this is somebody who knows computer programming. Who’s developing websites maybe in the US or in Europe, who are paying 15% of his income to do this.

Tim Draper: 35:30

We have a company called BitPesa that actually takes your Nigerian naira, turns it into bitcoin, shoots it over to the Tanzanian shillings, and then drops it … are they shillings? I think so. Then drops it down there.

Then they’re in something like 10 to 15 countries, or on their way to 10 or 15 different countries. So that all that goes away.

Barhydt: 35:57

If I understand what you’re saying though, the beauty of that is the users don’t even know how it’s working.

Tim Draper: 36:02

Right.

Eliminating the friction from finance

Barhydt: 36:02

Right? To me, I wonder if that’s the approach that’s ultimately going to lead to adoption. So it may be OpenNode, but are people going to be transacting in dollars using bitcoin in the background?

Tim Draper: 36:15

At first, at first. Used as on the rails or whatever.

Barhydt: 36:18

Right.

Tim Draper: 36:19

That’s already happened and that’s fine. But I actually think that bitcoin’s much easier to send. It was crazy, I gave bitcoin to …

Adam Draper: 36:28

Well, it can be to —

Tim Draper: 36:29

To the people at Christmas.

Adam Draper: 36:30

Fiat denominated bitcoin.

Tim Draper: 36:31

To family. I just went here, here. One of my nephews actually had his QR code open and I just went click and we had made the payment. It was the fastest payment I’ve ever made.

So that’s going to save retailers tons of time.

Barhydt: 36:53

Yup.

Adam Draper: 36:54

On the societal level of what’s it going to take? I think it does have to … we need to not talk about blockchain and bitcoin. I don’t talk about TCP/IP.

Barhydt: 37:06

Absolutely.

Adam Draper: 37:08

It has to fade, where it’s just I’m exchanging goods.

Barhydt: 37:11

Yeah, in 1991, you had to install a TCP/IP stack on a Windows 3.1 PC to use the internet.

That’s where we are right now in terms of having to understand how this stuff works.

Adam Draper: 37:21

So I think that there needs to be a couple toys that people don’t know that they’re using bitcoin or the blockchain for. Or crypto in general for, that exist in order to … it’s actually in this regulatory uncertainty market.

I think NFTs, non-fungible tokens, which are like CryptoKitties, where it’s like you have one of something on the internet and it’s a toy. It’s like a beanie baby online.

I think that those are going to escape a lot of regulatory uncertainty because it’s like are you going to regulate beanie babies? All the sudden we’re going to have this interface where you’re not noticing that you’re using a crypto network. But all the sudden you understand how it all works.

I understand how email works, I don’t really understand how email works. I just care that my message gets to you. So I’m more … I’d say one of the themes are user interfaces where I don’t need to deal with Ethereum or bitcoin, awesome, love it. Or a bank would also be awesome.

Until being able to buy things with cash and not have something that’s a cumbersome wallet, would be fantastic. We have a company called Nifty Gateway that’s sort of opening it up to NFTs. There’s still uncertainty, but are you going to regulate beanie babies? I don’t think so. I don’t think you should.

I think that’ll give us a good societal framework for how to think about crypto network.

Barhydt: 38:45

I think that’s why PayPal got away with a lot in the early days, right?

Adam Draper: 38:47

It was a toy.

Barhydt: 38:48

They were enabling people to buy Pez dispensers and beanie babies online… on eBay.

Right. As opposed to saying, hey, I’m sending… I’m sending to Russian oligarchs. If they were promoting sending money to Russian oligarchs … they are [crosstalk 00:39:02] now, but they probably would’ve happened sooner. Is my guess. I mean I wasn’t there, but I’m assuming that that’s what happened.

So okay, by the way, Nifty is a great name for an NFT company. That’s pretty cool, I didn’t know that.

Adam Draper: 39:13

It’s been a theme of names actually. I’ve seen a lot of them, but Nifty Gateway’s ours.

Barhydt: 39:21

I have this bias philosophy that you know very well because you know what Abra’s doing, you see the updates. But I think the collateralization of real-world assets using crypto is by far the best way to get adoption. Besides just digital gold. I mean that’s a foregone that people are doing that.

So have you seen other companies trying to figure that out? Or is it just too hard?

Regulatory uncertainty

Adam Draper: 39:41

The United States, not to bash regulation, but is sucking the wind out of everyone’s sails to try anything in the US. So you have to think I need to go somewhere else, I have to reside in a different place in order to even experiment with the idea.

I think that means that we are going to be leapfrogged.

Barhydt: 40:05

I just want to be clear to my lawyers who are watching this that Adam said that.

Adam Draper: 40:08

I said that.

Barhydt: 40:08

Not me.

Adam Draper: 40:09

I said that. No, I truly believe this. I think that this is an opportunity for places. I think a common conversation is that in Africa, they completely leapfrogged the desktop and they went straight to mobile.

I think that this is a leapfrogging moment for financial institutions in a country that basically needs to fill in a stable currency.

Barhydt: 40:36

I think the US is —

Tim Draper: 40:37

I’ll give you an example of that.

Barhydt: 40:37

Please, go ahead.

Tim Draper: 40:38

Where the US did suck the air out of the game. It’s too bad because … and it comes into the technology of an airdrop.

Tim Draper: 40:50

Because US gives away aid to all these countries. I don’t know some very large percentage of that aid, I would argue probably half, goes to the dictator.

Barhydt: 41:02

Like a commission because they’re the funnel.

Tim Draper: 41:05

So that the country gets very little of that. Well, an airdrop-

Adam Draper: 41:10

It’s really great for the dictator.

Tim Draper: 41:14

Right.

Barhydt: 41:14

It is.

Tim Draper: 41:15

Correct. An airdrop would be a fabulous way for the US to give away aid. It would also be a fabulous way for anyone who wants to donate money and do an airdrop.

Well, somehow now they say you can’t-

Adam Draper: 41:29

You’re not allowed to airdrop.

Tim Draper: 41:30 Airdrop because that is promoting your token. So somehow we’re letting the SEC, in that case, dictate what the country can do and what kind of-

Barhydt: 41:44

In the meantime, we legally give money to dictators.

Adam Draper: 41:46

The airdrop is sort of like viral marketing with money.

Tim Draper: 41:49

Yeah.

Adam Draper: 41:50

Yeah. It’s like we created viral marketing.

Tim Draper: 41:54

That’s their argument.

That it would be marketing a token.

Adam Draper: 41:57

No, I’m just saying that —

Barhydt: 41:59

Yeah, I mean-

Adam Draper: 41:59

It’s analogous to it.

Barhydt: 42:00

That gets into securities marketing issues, for sure.

Tim Draper: 42:02

But think of all the incredible applications of an airdrop.

And we just lost it because the legal framework has somehow told us that’s not fair.

Adam Draper: 42:13

Again, like global. You can’t … the US is not going to be the … I think that there are a lot of great things about the United States. I think that …

Tim Draper: 42:23

Basic freedoms are-

Adam Draper: 42:24

Basic freedoms are fantastic. I do. But I do feel that we, on this financial revolution, where we’re all moving to this new infrastructure, we’re going to get left behind if we don’t open it up.

Barhydt: 42:36

I think what you just said is why I’m optimistic about bitcoin in the US. There is enough supreme court backed case law to state that computer programs are protected free speech. I don’t talk about this publicly because this is not an academic exercise for me, I’m trying to run a business.

But really, when you think about it, bitcoin is not a commodity. It’s a computer program that actually generates other computer programs. That’s how you move bitcoin, you actually create small bitcoin scripts they’re called. That’s a computer program. Why are we calling that a commodity? That’s insane.

The supreme court is already established that computer programs are protected free speech.

Tim Draper: 43:09

Oh, have we … do we have the EFF or whatever working on a lawsuit yet?

Barhydt: 43:13

I was just going to say when the EFF, not a lawsuit, but I read a fascinating, somebody sent it to me yesterday, it came out about a month ago. I don’t know how I missed it. The SEC shut down and fined one of these decentralized exchange relays.

The EFF wrote a pretty scathing letter to the SEC that you basically are effectively trampling on first amendment free speech rights by shutting down what effectively are autonomous computer programs.

Now I am overly simplifying what was a beautifully written multi-page letter. But I think this is a real problem for the government but in a good way. Because I think that ultimately they’re going to have to acquiesce to the fact that this is free speech.

To your point, as the freedoms we enjoy, why is this any different?

Adam Draper: 44:01

You think George Washington and the group creating the constitution was thinking hand machines?

I’m tingling a little because I’ve never said this publicly, but I spent so much time thinking about this and why is nobody standing up in arms about this and just protesting the fact that we’re getting this wrong? We’re starting to build precedent after precedent going down the wrong path.

Adam Draper: 44:42

We forked wrong.

Barhydt: 44:43

Yeah.

Adam Draper: 44:44

We’re on the wrong side of the fork that just happened.

Barhydt: 44:46

Now as a venture capitalist, part of the problem is I can assure my investors, I am not going to spend their money to go fight the regulators on whether this is free speech or a commodity. It’s not going to happen.

Barhydt: 44:56

But somebody, whether it’s EFF to your point, is going to have to make that argument at some point. Because it’s just too fundamental to our future if we start getting into autonomous companies, autonomous regulations.

Looking toward the future

Adam Draper: 45:06

Oh, these are going to be consistent conversations that everyone’s having. It’s going to be about …

I just saw a billboard, Prudential, it was a very complacent billboard. Which is if you’re retired, the machine can’t take your job. The robots can’t take your job. I was like, wow, you really just hey, give up.

Tim Draper: 45:29

Give up.

Adam Draper: 45:29

Hey, give up.

Tim Draper: 45:32

That’s hilarious.

Adam Draper: 45:32

Give up. And that’s on the 101. That’s a huge billboard.

Tim Draper: 45:33

Adam came up with this great idea, which is to just have AI take all our jobs and then what? What you start thinking is well, good, I’m freed up to do all these other things.

So you get to abstract your job. It’s like when the hoe was invented, you’re not down on your hands and knees anymore. I mean it’s a big breakthrough.

Barhydt:45:57

I would love for my job to be automated.

Adam Draper: 45:59

Yeah.

Bill Barhydt: 45:59

Then I could go-

Tim Draper: 46:00

Yeah, me too.

Adam Draper: 46:01

Everyone’s worried about job automation. Everyone worried about this with the computer also. They were like, how many jobs are going to be replaced?

Barhydt: 46:06

Sure.

Adam Draper: 46:06

What it did, create new jobs.

Barhydt: 46:09

Look, we’ve had this conversation for 100s of years. Whether it’s the hoe-

Tim Draper: 46:15

The horse and carriage.

Barhydt: 46:15

Factory automation.

Adam Draper: 46:17

Yeah, the horse.

Barhydt: 46:17

Information technology. It’s never going to end.

Adam Draper: 46:19

Who’s going to drive people around? Uber actually.

Barhydt: 46:21

I think it may end when we reach —

Adam Draper: 46:22

And Lyft.

Barhydt: 46:23

When we do finally reach the singularity, it may end. But hopefully, we’ll all be on a beach by then enjoying ourselves.

Tim Draper: 46:29

Yeah. Except I started to think about that singularity. Getting a machine to predict the unpredictable future. The predictable future I get. They can extrapolate, it can be statistically.

But there’s an unpredictable future. That only a few entrepreneurs in the world are coming up with. Now we’ll have seven billion of these entrepreneurs-

Barhydt: 46:59

So in other words, why would a machine make irrational bets that you’d be willing to bet on personally?

Tim Draper: 47:02

That I’d be willing to make?

Barhydt: 47:04

Interesting. I hadn’t thought about that.

Tim Draper: 47:06

Maybe the machine learns to do an irrational bet for this singularity. But I believe the machines are still going to be working for us. I don’t think it’s going to go the other way.

Barhydt: 47:18

Yeah. Interesting. Wow. All right. I want to keep going but I’m being given the “we got to get back to work” sign. This has been amazing.

Adam Draper: 47:28

This was fantastic.

Barhydt: 47:28

Thank you so much.

Adam Draper: 47:29

Hey, thank you.

Barhydt: 47:29

On behalf of 100s of 1000s of Crypto Bites fans. So it’s going to be good.

]]>https://www.abra.com/blog/crypto-bites-chat-with-tim-draper-and-adam-draper/feed/1How decentralized finance could make investing more accessiblehttps://www.abra.com/blog/how-decentralized-finance-could-make-investing-more-accessible/ https://www.abra.com/blog/how-decentralized-finance-could-make-investing-more-accessible/#commentsWed, 17 Apr 2019 21:14:16 +0000https://www.abra.com/?p=3251Only a small fraction of the global population is investing in the financial markets and assets that help build and preserve personal wealth. The latest infographic done in partnership with Visual Capitalist looks at traditional investing trends at a global scale, and how the emergence of decentralized finance can help create more financial access, opportunity, and equality. This infographic is the third in a series of data-driven stories done in partnership with Visual Capitalist. The first graphic in the series examined the flaws of the

]]>Only a small fraction of the global population is investing in the financial markets and assets that help build and preserve personal wealth. The latest infographic done in partnership with Visual Capitalist looks at traditional investing trends at a global scale, and how the emergence of decentralized finance can help create more financial access, opportunity, and equality.

Current barriers to entry for most of the world’s new investors interested in equity markets and other valuable financial assets include geographic location (there is a correlation between where in the world people are located and the ability to access financial markets), financial literacy/complexity, unstable local markets, and the cost of investing through traditional means.

Some of those problems can be addressed by better financial technology, like Bitcoin.

Abra is using the programmable features of cryptocurrencies to build a global investment app that will help democratize access to financial services, like investing.

Like Bitcoin itself, crypto-collateralized investments into things like traditional equities can happen via fractional or micro-investing, which opens the possibility of investing in some of the world’s most valuable assets to more people.

]]>https://www.abra.com/blog/how-decentralized-finance-could-make-investing-more-accessible/feed/2Transaction history function now availablehttps://www.abra.com/blog/transaction-history-function-now-available/ https://www.abra.com/blog/transaction-history-function-now-available/#respondFri, 12 Apr 2019 20:37:16 +0000https://www.abra.com/?p=3244Just in time for the close of another fun-filled tax season, we are releasing new functionality that allows users to download their Abra transaction history from within the app. Not only will this help with tax accounting, but the new transaction download will also help investors take a closer look at when they bought or sold various assets in the app, allowing for more precise cost-basis calculations. The exportable transaction information is now available for all of the years that Abra has been in existence

]]>Just in time for the close of another fun-filled tax season, we are releasing new functionality that allows users to download their Abra transaction history from within the app.

Not only will this help with tax accounting, but the new transaction download will also help investors take a closer look at when they bought or sold various assets in the app, allowing for more precise cost-basis calculations.

The exportable transaction information is now available for all of the years that Abra has been in existence — and the files are downloadable by each calendar year.

This new transaction record functionality can be found right in the transaction history screen in the app — you should see a big button at the top of the screen that says “Export transaction history.”

Export your Abra transaction history in three easy steps:

You can find the export transaction function on the transaction history screen (image left).

After clicking the “export transaction history button” you will see an option to choose the year and input an email. (image center)

The last step will be a confirmation screen showing that you have completed the request. (image right)

While this is a great strategy and helps to insulate against major market movements, it also creates a long trail of crypto trades that need to be accounted for and calculated before determining profit and loss.

Now, those steps are made easy by exporting your transaction history. Once exported, your history will be emailed to the address that you will be prompted to enter.

One thing to note is that if you have more than one Abra wallet, you will have to go through the transaction export download for each wallet. (This is because of Abra’s non-custodial architecture.)

Crypto tax functionality

This transaction history update comes in time for tax deadlines in the US.

When you have exported and emailed the transaction history, it will arrive in your inbox as a CSV spreadsheet. This format allows you to perform your own calculations, and it is also compatible with cryptotrader.tax, and likely other tax account software in the future.

If you are looking for the new app transaction history functionality, but don’t see it yet, make sure you have the latest version of the app downloaded.

]]>https://www.abra.com/blog/transaction-history-function-now-available/feed/0Private keys and Abra recovery phrasehttps://www.abra.com/blog/private-keys-and-abra-recovery-phrase/ https://www.abra.com/blog/private-keys-and-abra-recovery-phrase/#respondMon, 08 Apr 2019 17:31:14 +0000https://www.abra.com/?p=3241Understanding how the Abra recovery phrase works is critical for anyone learning to navigate the emerging world of decentralized finance. The Abra recovery phrase is an easy-to-use version of a crypto private key and allows Abra users to store assets on their phones. Those assets are accounted for on the Bitcoin blockchain and, using the private key/recovery phrase system, become available to invest in a number of assets all from the Abra wallet. Abra’s recovery phrase plays a critical role in the security and overall

The Abra recovery phrase is an easy-to-use version of a crypto private key and allows Abra users to store assets on their phones. Those assets are accounted for on the Bitcoin blockchain and, using the private key/recovery phrase system, become available to invest in a number of assets all from the Abra wallet.

Abra’s recovery phrase plays a critical role in the security and overall functionality of each Abra wallet. More importantly, if the recovery phrase is not properly written down or backed up, then Abra users run the risk of permanently losing access to their assets.

An Abra wallet exists as decentralized, blockchain-based asset storage, which means Abra never has access to the funds stored by individual users. If an Abra user loses or records the wrong recovery phrase, there is nothing any Abra team member can do to regain access to the assets stored in that wallet.

Let’s take a look at how Abra’s wallets work and best practices for managing an Abra recovery phrase:

What is a non-custodial wallet?

Abra is a non-custodial wallet. That means that each Abra user has control over the private keys which enables access to their wallet. Abra wallets are Bitcoin-based, and the private keys to each wallet are linked to each individual user’s mobile device.

A non-custodial wallet is a powerful tool when wielded correctly. It allows Abra users to maintain a level of control over their assets that is just not possible when compared to traditional finance and banking.

Most financial service providers, as well as some major crypto exchanges, are custodial. A custodial service controls users’ assets, and structure-wise they exist as centralized databases containing valuable user information including asset balances.

From a security perspective, it’s no wonder why there seems to be an endless stream of news articles about major data hacks at crypto exchanges, banks, insurance companies, credit card providers, etc. Those big pools of centralized data represent massive attack surfaces for hackers and digital criminals to exploit.

In the non-custodial model, attack surfaces become distributed. And while individual mobile devices might become compromised through porting, social engineering, or some similar means — and that kind of behavior would definitely impact individual users — there is no central network or account to hack and steal from.

For a long time, centralized, custodial accounts were the only kinds of financial services and products available. Now, following the introduction and maturation of Bitcoin and related cryptocurrency technology, that’s no longer the case. Today, there are easy-to-use non-custodial services like Abra that are more secure than traditional alternatives.

What’s more, a blockchain-based non-custodial wallet also provides a massively powerful platform that allows Abra users to fully leverage the power of crypto’s programmable money. Abra can only exist as a globally accessible app available to everyone regardless of banking or accredited investor status because of the non-custodial model.

When using a non-custodial wallet, individual users are accepting the responsibility for the control of their assets. So if a recovery phrase, or a private key, is lost or compromised, there is no way for Abra or for anyone else to do a workaround to regain access to those funds. It’s not like you can call a centralized corporation and ask for your account to be restored — the equivalent in the decentralized world does not exist.

Recovery phrase: What is it and how does it work?

The Abra recovery phrase is based on a Bitcoin private key. Outside of Abra, you might hear the concept of a recovery phrase referred to as a seed phrase or a wallet seed, which all mean the same thing.

Bitcoin’s real breakthrough is that it creates a distributed, verifiable public ledger in the form of a series of blocks of confirmed transactions (also known as the blockchain). The computation involved in confirming and packaging those blocks into a record of transactions (a process known as mining) is so resource-intensive in terms of computing power and energy, that it becomes extremely expensive to create some kind of attack to compromise the transaction record that the Bitcoin network is documenting.

And this level of computational robustness happens across a series of nodes that are running on computers all around the world. The result is that no government, corporation, or single entity owns the Bitcoin network, which means that the distributed ledger, which can be used to carry out peer-to-peer trusted transactions without the need for a middleman, can be accessed by anyone, at any time.

In order for Bitcoin’s distributed ledger to work and to be accessible by potential users from anywhere in the world, Bitcoin was developed using a system of public key cryptography (this, by the way, is also how cryptocurrencies got their name).

There are three components to this cryptographically-protected process as they pertain to the Abra recovery phrase — the wallet, the public key, and the private key. A Bitcoin wallet is a little bit of a misnomer because actual user assets are not stored in the wallet, instead the wallet acts like an interface between the blockchain device where a user’s private keys are stored (usually a desktop, a paper or hardware wallet, or in the case of Abra, on a mobile device).

The private key, accessible through the wallet, maps to a public key (also called a public address) on the blockchain that shows the bitcoin balance for that address, which allows for public auditing (anyone who knows where to look on the blockchain can see how much bitcoin lives at the public address, and people can have multiple public addresses). Public keys are a string of letters and numbers but can also be represented by QR codes and they are what people share in order to receive inbound bitcoin payments.

Finally, the only way to send bitcoin (either to another bitcoin wallet or to a third-party to convert bitcoin to another crypto or fiat currency) is to have access to the private key.

When first setting up an Abra wallet, users are issued a recovery phrase which acts as a unique identifier. In the background, the Abra user is creating a hierarchical deterministic or HD wallet. The actual recovery phrase is a 128-bit encrypted value that is converted to a sequence of 13 randomly generated words, creating a mnemonic phrase that is easier for people to document.

The great thing about this particular setup of wallet and recovery phrase is that is it robust in terms of what can happen on the backend. Abra users are able to transact across an array of different kinds of assets without having to restructure their wallets or reset their Abra recovery phrase.

It should be noted that Abra wallets are designed to work with individual mobile devices, so users should not try to install the same wallet, using the same recovery phrase on multiple devices and expect to have all of Abra’s features accessible in multiple places.

When the Abra recovery phrase is properly documented (if unsure, the recovery phrase can be checked and confirmed under the “wallet security option” in the menu of the Abra app), then Abra users can move their wallets to a new device by following the instructions for recovering an Abra wallet when prompted.

How to use the Abra recovery phrase in four steps

Step one: Get your recovery phrase

The very first step is Abra recovery phrase process is actually documenting and storing your recovery phrase.

This is probably the most important step because if you document the phrase incorrectly, or don’t document it at all, you run the risk of losing access to your Abra wallet and all of the assets in that wallet will be completely inaccessible, including by the Abra team.

You will have two chances to document your Abra recovery phrase. The first time will be when you initially download the Abra app and create a wallet. The second time will be in the form of a reminder after the first few times you open the Abra app.

Step two: Write down your phrase

Your Abra recovery phrase will be a series of 13 words that are randomly generated and map to a 128-bit private Bitcoin key.

Write this recovery phrase down on a piece of paper and store with other important documents. If you lose this recovery phrase you will not be able to access your Abra wallet, and the Abra team will be unable to help you get access to those assets.

Resist the urge to snapshot your recovery phrase and store it on your phone. That’s not a secure practice and you run the risk of having your wallet compromised. Anyone with access to your recovery phrase can also access your wallet.

Step 3: Confirm your recovery phrase

After documenting the recovery phrase for the first time, you will have a chance to test it before proceeding.

Make sure you don’t copy and paste the recovery phrase and instead work from the 13 words you have written down and plan to store in a secure location.

Step 4: Recovering your recovery phrase

You can double check your recovery phrase from time to time by looking under the wallet security section of the main menu (in the upper left of the app screen).

Whenever you upgrade devices or want to move your Abra wallet to a new device, you will need to input your recovery phrase to install your wallet and access your funds.

Why Abra’s non-custodial wallet is significant

OK, so we’ve covered the security aspects of non-custodial wallets and what to expect when setting up an Abra wallet and getting a recovery phrase.

But another aspect of Abra’s non-custodial nature is what the technology enables from a scaling perspective.

Abra is available worldwide and is rapidly building a single app that will be able to handle a wide range of financial services — for now, Abra users can send money and invest in a number of different kinds of assets — but in the future, using Abra will be like carrying a full service bank in your pocket.

All this functionality stems from using the Bitcoin blockchain as infrastructure and using the decentralized non-custodial wallet as the interface between Abra users and an entirely new form of finance.

But all of this begins with a few easy first steps. Please remember to write down your recovery phrase, and treat it like you would any other key that unlocks something really valuable.

]]>https://www.abra.com/blog/private-keys-and-abra-recovery-phrase/feed/0How Abra works tech talk at 2019 MIT Bitcoin Expohttps://www.abra.com/blog/2019-mit-bitcoin-expo/ https://www.abra.com/blog/2019-mit-bitcoin-expo/#commentsMon, 01 Apr 2019 18:39:04 +0000https://www.abra.com/?p=3231On March 9, Abra founder and CEO Bill Barhydt gave a presentation during the 2019 MIT Bitcoin Expo. Barhydt used the presentation to give a brief but technical talk about how Abra works. Specifically, he explained the concept of crypto-collateralized contracts and Abra’s synthetic asset model. The following transcript has been slightly edited for clarity. The transcript starts after the one-minute mark because there is a brief issue with the presentation slides at the very beginning. Begin transcript: 01:11 All right. Since I get extra

]]>On March 9, Abra founder and CEO Bill Barhydt gave a presentation during the 2019 MIT Bitcoin Expo. Barhydt used the presentation to give a brief but technical talk about how Abra works. Specifically, he explained the concept of crypto-collateralized contracts and Abra’s synthetic asset model.

The following transcript has been slightly edited for clarity. The transcript starts after the one-minute mark because there is a brief issue with the presentation slides at the very beginning.

Begin transcript:

01:11 All right. Since I get extra time, I will give you a business overview of Abra, then. This is free time. For those of you who don’t know, my company, Abra, is a crypto wallet platform that allows you to get price exposure as an investor to — in theory, almost any asset in the world. We started out with fiat currencies, and a large number of cryptocurrencies, and recently we’ve announced that we’ve created a synthetic version of the entire Nasdaq, which we’re going to be launching outside of the US in a few weeks, and then hopefully inside the US later this year.

And basically the product works as one big HD wallet, for the tech initiated among us, and uses Bitcoin-based multi-sig, effectively smart contracts, but P2SH smart contracts to give people synthetic price exposure to any asset. The purpose of this talk is to explain to you how that actually works, both from the consumer-facing perspective, as well as the internal-facing perspective, in terms of how we eliminate the consumer’s counterparty risk to Abra.

02:29 Inside of Abra we effectively run two different businesses. One is the technology shop, which implements all of the wallet scripting, and everything related to what’s happening on-chain. Everything that happens in the Abra wallet is 100% on-chain. It’s a noncustodial HD wallet that makes this extremely complex, because, in other words, the consumer is holding their own collateral to these contracts. There’s no chance to get this wrong. It has to work. The other part of the operation is the financial engineering part of the operation where we’re actually trading in real time to eliminate the consumer’s counterparty risk on the contracts.

03:37 This is meant to be a handout. Sorry for the oodles of text, but again the purpose of the app for Abra is facilitating global financial inclusion. Giving people who are in hard-to-reach or economies that normally wouldn’t have access to certain financial services, whether it’s investing, payments and money transfer, remittances, eventually peer-to-peer credit, to give them that access using a model that works outside of the traditional banking system in a way that’s legal. We wanted to create a 100% unhackable solution at the same time. As you can imagine, if we’re gonna be holding contracts worth billions of dollars — and I say holding in a logical sense, since we’re actually not holding consumer funds — it’s really important that somebody can’t just come in and hack the entire pool of money in the system, and so the idea is to create this synthetic asset model that effectively uses bitcoin to give consumers price exposure to any liquid asset. We call them crypto-collateralized contracts, or C3. It’s 100% bitcoin-based today. We do have the ability to do this with other crypto assets, particularly forks of bitcoin, as well as ether. We’ve launched a native ether wallet inside the app.

05:04 But the app basically has 26 synthetic cryptocurrencies, so we actually, as pretty much a large global test, created 26 synthetic altcoins using bitcoin, so if you’re holding Zcash and Abra, you’re actually getting synthetic exposure to Zcash via bitcoin, and we’ve processed almost a billion dollars in transaction volume over the last 14 or so months, between the fiat positions — there are 50 synthetic fiat currencies and 26 synthetic cryptocurrencies in the system — that has processed almost a billion dollars already, and the way this works is what you’re holding — and I’ll just skip to the next slide to show you this — what you’re holding is one big HD wallet. Whether it’s the bitcoin, or the synthetic assets, and separately to that, of course, the ether-like coin and BCH, which are also native within the HD wallet. But everything that you see that looks like a traditional asset here — dollars, or other cryptos beyond the ones I mentioned — is synthetic, meaning it’s bitcoin tied to a contract, and I’m gonna show you how that works. The user can deposit Bitcoin directly to collateralize the contract. They have to collateralize the contract somehow. In English, if you’re buying a thousand dollars price exposure to Apple the thousand dollars’ worth of bitcoin has to come from somewhere, and that’s the consumer’s responsibility.

06:31 They can either do that via the banking system— and if they do it via the banking system what they’re actually doing is buying bitcoin from one of our exchange partners — to collateralize the contract. Or if they actually own bitcoin and they can actually deposit the bitcoin directly, and because our app is global, and we don’t have the banking integration done everywhere yet — we’re working on that — about 60% of the deposits are bitcoin-based, and 40% are fiat, and the 40% that are fiat are mostly the U.S. and Europe, where we have exchange partners live and fully integrated, where you can take your fiat, deposit it at our exchange partner, and unbeknownst to you, it just shows up as collateral in the app. They don’t actually know the process for the collateralization, to them, it looks like the way you use Venmo.

07:12 That’s the first part of understanding Abra. That, at its core, it’s one big bitcoin wallet. The second part of understanding Abra is understanding how the smart contract technology works.

07:24 Today, Abra is basically using a multi-sig P2SH model, where the consumer is collateralizing one side and signing one side, and Abra is signing the other side. Soon we’ll be migrating this from two-of-two to two-of-three. Today I’m just focusing on what we’ve got, not where we’re going. I’ve actually got other slides on where we’re going, but that’s normally an hour and a half. I only have 25 minutes.

07:47 All contracts within Abra settle on the bitcoin blockchain, with actual delivery, at the latest, every 25 days. In English, the contracts roll over every 25 days. We do this for legal reasons in the related to commodity swap transactions, which I won’t bore you with, and a smart contract basically includes a normal UTXO, plus some extra information, because we have to know the price at entry time in order to determine who’s in the money at rollover or exit time.

08:23 The addressing is just a normal bitcoin payment address. There’s nothing special about that. We use bitcoin the way it was meant to be used. There’s nothing extra. There’s no extra off-chain or side-chain technology here, it is 100% on-chain settled.

08:41 We also have this ability to do smart contract hedge amendments, and what this means is that if you’re using a bitcoin wallet to get price exposure to Zcash, Monero, the US dollar, and Apple at the same time — by the way, these transactions are very, very large, so our mining fees tend to be much larger because of the nature of multi-sig transactions versus others. There are days when Abra has done significantly over one percent of on-chain transactions. That’s not a goal, by the way, we simply have no choice. The transactions have to be on-chain, and they’re larger than other transactions, so we end up with a disproportionate amount of on-chain transactions, as opposed to Coinbase, where 99.99% of their transactions are off-chain — this contract amendment concept actually allows us to simplify or improve upon the amount of data we’re using, how often we have to write to the chain, et cetera, et cetera, by basically making amendments to the existing contracts, and we can basically chain these as long as there’s enough value in the unspent output of what we’re using. Again, this is something that I could easily spend a half hour on because it’s super interesting, but in the interest of time, I want to introduce the topic to you.

09:56 This is the overall architecture of what our smart contract system looks like. It’s going to change soon when we roll out the third party oracle function. Today, it’s kind of — how would I best describe it? — mutually assured non-destruction, because it’s a two-of-two system, meaning that the consumer can’t screw Abra and Abra can’t screw the consumer, but the consumer has to write down the backup phrase to use the app because if they don’t do it we don’t let them. But if they do lose the app and the backup phrase, then Abra’s in the money on the contracts, then we obviously have a problem. To address we’re rolling out a contract oracle function later this year.

It’ll be an M-of-N oracle function, which means eventually it won’t just be in one geography, it’ll be in multiple geographies, which makes it even harder to shut down. It’ll use things like Shamir’s Secret Sharing to even further distribute the private key of the oracle. That protects both the consumer if Abra goes away, and it protects Abra if the consumer loses their key.

11:09 If you’ve studied smart contracts at all, this probably looks familiar to you. The difference is, what Abra’s doing today to create the synthetic currencies is very, very simple. It doesn’t require more than what bitcoin script does. Which is fantastic. That’s part of what makes Abra so secure, the contracts are very simple.

11:28 What’s really complex for the uninitiated, is when you enter into this contract with Abra, effectively what you’ve done, if you’re getting price exposure to Apple, is you’ve taken bitcoin and you’ve effectively shorted the bitcoin versus Apple as a consumer. To you it just looks like you’ve put collateral in the contract equal to Apple, but if the price of Apple goes up versus bitcoin, you’re expecting more bitcoin at the end of the contract, and vice versa. If Apple goes down versus bitcoin, you’re gonna actually lose bitcoin.

11:58 Abra is the counterparty to those contracts. Which means, from the consumer’s perspective, the consumer has counterparty risk versus Abra. That’s unacceptable, because we’re not marketing this as some sort of sophisticated derivative system, we’re marketing this as a consumer-facing retail investment platform. The consumer should not be in a position to have to understand anything about counter-party risk of the mechanics of hedging or any of that. The way we deal with that is that we basically create, not only the smart contract, but we create a real-time hedging system that completes eliminates that counterparty risk, with one exception. The system depends upon the price of bitcoin being above zero. It doesn’t deal with systemic risk. If you have a gold swap — if you’re buying gold versus dollars — and gold goes to zero and you’re settling in gold, you owe the counter-party an infinite amount of gold. It’s the same thing here. We can’t account for the systemic risk of bitcoin, but if bitcoin is worth one penny, even, this system works.

12:55 Last year, when bitcoin fell 85%, and people were holding synthetic dollars, and we were making them whole almost every day, Abra didn’t lose a penny.

13:06 Abra is taking the long side to the consumer’s short, from a financial engineering perspective, and it’s important, then — and we report this to our board, our board members are sitting here, they can vouch for this — in our board meeting every single month, we actually report the net exposure of the entire Abra network. Meaning, if you take all of the consumer’s positions, all the average hedges, and you net them up, what is not only the current mark to market, but what is the mark to market regardless of any movement, except for the catastrophic failure of bitcoin, we’ve done something really wrong, and it never has been, and it won’t be when you understand how this works.

13:49 There are three functional aspects to making sure the hedge works correctly. The first is the initial collateralization, meaning I want to deposit — in this example, I’m using Ethereum Classic. It could be Apple shares, it could be dollars, doesn’t matter, the mechanics are exactly the same — I wanna buy 1,000 ETC — I made these prices up — the spot price for BTC is $4,000, spot price for ETC is $4, effectively Alice has to get one bitcoin on her app, because that is the collateral to give her price exposure to the asset.

14:30 At the same time, there’s a hedging operation going on, where Abra is effectively borrowing one BTC from a lender. We’ve actually borrowed that long in advance of this happening, because we can’t borrow such small amounts in real time. We pay the extra interest on that, but we are actually converting in real-time the one BTC to 1,000 ETC, via Coinbase or another platform. That is Abra’s asset. That is not the consumer’s asset. The consumer is holding their own bitcoin. What I’m doing in the bottom half of the slide is simply for my balance sheet to hedge away counterparty risk on the transaction. The fact that I borrowed bitcoin and sold it for Ethereum Classic, that has nothing to do with Alice. That is on my balance sheet. But why are they willing to lend me that bitcoin in the first place? Because they see that I’m in a multi-sig contract with Alice that’s 100% collateralized. Even though not only are we one of the largest borrowers of Bitcoin in the world, we actually pay infinitely lower interest rates than pretty much everyone else, because our contracts are fully collateralized by the consumer.

15:37 That just gets the money in the system. Now we have to deal with what happens when the price goes up and the price goes down and you wanna take money out of the system.

15:44 Let’s start with the price of Ethereum Classic goes up. Now I basically started with the same collateral as before, but at the end of the transaction, somehow I have to end up with more bitcoin. In this case, if the price of bitcoin stays the same and the price of Ethereum Classic doubles. In theory, I should end up with double the amount of bitcoin. But, remember when I sold the bitcoin for Ethereum Classic on the last slide? That means when I convert it back to bitcoin, it buys double the amount of bitcoin that it used to. Turns out it buys just enough to make Alice whole, and just enough to make my lender whole. Which is the arrows you see in the slide.

16:33 By the way, it doesn’t matter whether the price doubles or triples, the math works. What happens if the price goes the other way? If the price goes the other way, meaning that the price of Ethereum Classic falls in half, Alice is now holding too much bitcoin. She will automatically, via the script, end up giving — in this instance — half the bitcoin to Abra. That’s good, because the Ethereum Classic that I’m holding is now worth half of what it used to, so I don’t have enough to pay back the lender, but it turns out the Ethereum Classic that I’m holding converted back to bitcoin, plus the Bitcoin Alice gives to me, is exactly enough to pay back the lender, and now both parties are holding it.

17:19 Sorry for doing that quickly. Took me a year to figure this out, and I was a quant at Goldman. Took me a year to figure this out. This is the mechanics of what we’ve automated, minus the borrow. The borrow we do in advance, because we’re borrowing millions of dollars, and balancing constantly, and you can’t do that in real-time. Plus, there’s too much of a risk with block cycles and whatnot. We go to our lenders well in advance, and we have a small trading desk where we work that out. Everything else that I’ve described to you is 100% automated. If you buy synthetic XRP in Abra, your counterparty risk to Abra is hedged away in less than a minute. It has to be, otherwise, it would be unethical in my opinion.

18:03 This is just the flows of what is actually happening behind the scenes. The customer, as I said, they’ve taken an initial long position, but then what they’re actually doing is they’re shorting Bitcoin versus that Ethereum Classic in order to get price exposure to Ethereum Classic, which is what you see in that second column there, and then Abra is taking the long position in Bitcoin by going short effectively Ethereum Classic. The consumer doesn’t really understand this, and that’s why it’s so important that this is delta neutral, and why it’s basically got zero exposure to the consumer. Because otherwise, I’d have to ethically sit every single consumer down and make sure they understand this.

18:51 If you look at our terms of service, it’s very clear that Abra is doing this in the system.

19:02 The final column here shows that we’ll have neutral exposure by being able to settle correctly under all circumstances. Again, with that specific example, there are different mechanics. If this is a dollar — a synthetic dollar, synthetic Ethereum Classic, synthetic Apple — the right-hand column looks slightly different. If I’m hedging that Ripple or Ethereum Classic, there’s only one way I can do it today. In traditional financial engineering, what you would want to do is you would want to buy an NDF — a non-deliverable forward — contract between Bitcoin and Ripple, like you would if you were British Petroleum reckoning in pounds, and you were doing a lot of business in dollars, you would buy NDF contracts to offset forex risk between the dollar and the pound. That doesn’t exist between Bitcoin and XRP or Bitcoin and ETC Those markets are just tiny. We create them synthetically by borrowing bitcoin and then selling it in realtime, and that interest is effectively the cost of the insurance contract, and that’s offset by a spread that the consumer pays when they enter into the contract in the first place.

20:11 That’s how it works for the synthetic cryptos. If it’s synthetic fiat, it’s actually much simpler. If I’m holding synthetic euros — we have lots of people in Europe using this, they put bitcoin in the app and they convert it to euros -— what actually happens is that Abra’s buying future contracts in Bitcoin versus the dollar, and then offsetting that in real time with the NDF of the dollar versus the euro, which obviously exists, and those markets are both highly liquid, and Abra can often make money on those features contracts because we’re the short counterparty, and that pays a premium most days, and that allows us to lower the cost dramatically for the consumer, and then on the announcement we recently made around making Nasdaq stocks available for our international users, it uses a similar model, where the consumer is effectively taking the position of bitcoin versus Apple, and then Abra will buy the dollar bitcoin future again, but that will be offset either by borrowing shares from a prime broker or doing something like future contracts on the other side. Again, highly liquid markets. We use directly integrated services, like interactive brokers and others, to make that work. Again, in real-time.

21:24 If you push buy on that share, the hedge has happened, usually in less than one to two minutes. It may take a little bit longer on the stock side, just because of the way the APIs work, but generally less than two minutes.

21:36 The entire system does a recalculation every five minutes, and we run these Google sheets with big red flashing lights, that say what the total exposure across the entire Abra system between consumers and our hedging operation is. And we have somebody who’s got it open on their screen literally every minute they’re in the office, and then they get paged via text message when they’re not in the office if something happens that shouldn’t. It’s never happened, but we assume that it would so that we are diligent and how we do this.

22:16 Normally this takes hours to explain correctly. You got the 19-minute version. I’m happy to take a few minutes of questions and then pick up the conversation. I think I saw your hand first. Hand over here, go ahead.

22:35 Question one: I’m a huge fan of Abra. I’ve preached the gospel of Abra the remittance community ad nauseam, and you’ve done a masterful job at circumventing the traditional regulatory machines with your primary business or your first business in the remittance area. I was just wondering, with your foray into the securities industry tangentially touching the securities industry, are you planning to implement the same strategy to basically avoid the legacy regulators who would probably want some sort of regulation on that?

23:18 It’s a complex topic. I actually spent the entire day at the SEC last week. I met the chairman. In terms of functionally, how this works, I think that there are ways to do this probably without actually being SEC-registered in some way. The problem is the marketing. I can’t market to consumers the issuance of some price exposure to Apple or to Nasdaq or SPDRs without SEC oversight. It’s just not possible. Because it looks like a security swap from their perspective. But it’s worse than that, because Dodd-Frank mandated rules for security swaps. It’s nine years later, the SEC chose to ignore the implementation of those rules in the legislation. I brought this up, and they assured me that they’re working on it, but I can also assure you that they don’t include crypto because the Dodd-Frank was passed when crypto was about 50 cents. That’s a big problem, not for me, for the industry. This is way bigger outside the US than it is inside the US. If I never market the ability to buy Apple via bitcoin in the US, it’ll mean nothing to Abra. But I want it to work here. If I’m doing it in 154 countries, I wanted to do it in 155.

24:36 We’re working on that part, to figure that out, but the US regulation is infinitely more complex in this regard than everyone else’s. Especially when it comes to something that looks like a security swap. The other side, which is commodities, if you noticed I talked about the 25-day delivery and that stuff. That has to do with the commodities area, which is different than the securities area, and I won’t bore folks with that, but the CFTC issued guidance on what actual delivery means if your asset settles in bitcoin, basically taking their old guidance on actual delivery for traditional assets like oil and other commodities. It’s a complex topic, but I’m not going to jail for anyone. We’re doing this right across the board. This is not just about how do you get around regulation. It’s a very complex topic.

25:30 The first thing is to make sure that the regulators understand that you’re doing right by the consumer. When they see that the consumer doesn’t have counter party risk to Abra, the nature of the conversation changes, and also because we’re not holding the collateral. Beyond that, you have to get into the very nuanced mechanics of what you’re doing.

25:51 Sorry for the long answer.

Question two:25:53 As an organizer, I actually wanna ask a question. Sorry guys. I’m interested in the way you operate the multi-sig contract, because the way I understood it, every 25 days you basically have a transaction happen.

Barhydt: 26:11 Unless you close the position beforehand.

Question two continued: 26:12 Sure. Unless you close the position beforehand. If somebody’s holding synthetic ETC or UFC or whatever, and it’s an HD wallet, where every transaction has to be two-of-two signed, how do you carry out the transaction without necessarily the involvement of the user?

Barhydt: 26:31 They have pre-signed, in some cases, the transaction, and that will change when we go to the oracle model.

26:43 That’s only true in some cases. There are some cases where they’ve pre-signed. There’s other cases where we actually just don’t publish the UTXO until another transaction happens. But there’s nuances of why we’re doing that in different cases, and I’d have to get my CTO to explain.

Question three: 27:02I’m just curious that when you have a consumer holding the bitcoin as collateral, and you are borrowing, in a sense when you have a large amount of demand, would you eventually affect the price of the bitcoin?

Barhydt: 27:15 Yeah. I think the single best use case for bitcoin over the next five years is the collateralization of real world assets to facilitate banking. As a matter of fact, I don’t even know what number two is. Until we have a second layer that can actually enable real-world payments, this is the best use case of bitcoin I’ve ever seen. By definition, there’s not enough bitcoin right now to collateralize all the assets when we’d wanna deal with this. I think there’s the answer to your question. If I’m right. I don’t think Abra’s gonna be the only company to do this.

27:44 Sorry, I didn’t hear what you said?

Question three continued: 27:45 Will that become a limitation?

Barhydt: 27:49 It wouldn’t become a limitation on price, because the price can keep going up forever.

Question three continued: 27:52 Limitation of supply of bitcoin.

Barhydt: 27:53 The limitation is layer one. That’s the limitation. Eventually, Abra wallets will also become Lightning wallets. There will be a server version of the Abra wallet for exchanges and other banks to use and hold synthetic assets, those will also be Lightning wallets, which we’re gonna announce soon, and those will all be able to communicate at layer two. That will solve most of the problem. But even then, as a settlement layer, layer one will have to scale better. That’s the biggest risk to Abra by far.

Question four:28:27 Just wondering, thank you. When you’re taking these very complex hedge positions, I would guess that it would cost a lot of money to do that. How do you pay for that? Who’s paying for that?

Barhydt: 28:42 The hedges aren’t complex. The overall mechanics of the system are complex. In the case of an altcoin, I’m borrowing bitcoin and selling it for XRP, that’s not complex. The interest rate is non-zero. That’s offset by the consumer’s spread. On the case of equities and fiat currencies, I’m actually making money on most hedges, because the future contract on Bitcoin has a premium on one side versus the other side. In most days, the short side — which is the side I’m taking because I have short exposure — that pays a two to three basis point premium. That’s why, when we launch equities internationally, the initial cost is gonna be zero, because on average Abra should be making a reasonable percentage of return on equity, even though I’m not actually holding the crypto collateral.

]]>https://www.abra.com/blog/2019-mit-bitcoin-expo/feed/3The world’s computer: An illustrated guide to Ethereumhttps://www.abra.com/blog/the-worlds-computer-an-illustrated-guide-to-ethereum/ https://www.abra.com/blog/the-worlds-computer-an-illustrated-guide-to-ethereum/#respondFri, 15 Mar 2019 19:18:16 +0000https://www.abra.com/?p=3219In order to help celebrate our recent announcement about the addition of Ethereum native support to the Abra app (which means direct deposits and withdrawals of ether to and from an Abra wallet are now possible), we produced another in our ongoing series of graphic illustrator explainers. In “The world’s computer: Ethereum and the reinvented internet,” we take a look at what Ethereum is, why it was created, and what sorts of applications people are developing on the platform. Be sure to check out the

At Abra, we believe that the technology driving cryptocurrencies has enormous potential to create positive disruptions in traditional finance, and ultimately lead to outcomes fostering greater global financial access and equality.

]]>https://www.abra.com/blog/the-worlds-computer-an-illustrated-guide-to-ethereum/feed/0Crypto Bites: A chat with Ethereum Founder Vitalik Buterinhttps://www.abra.com/blog/crypto-bites-a-chat-with-ethereum-founder-vitalik-buterin/ https://www.abra.com/blog/crypto-bites-a-chat-with-ethereum-founder-vitalik-buterin/#respondWed, 13 Mar 2019 19:16:34 +0000https://www.abra.com/?p=3216This Crypto Bites episode was recorded in late 2018 in New York City. The conversation between Abra founder and CEO Bill Barhydt and Ethereum founder Vitalik Buterin covers a lot of ground including the origins of the idea for Ethereum, some of the problems the that Ethereum was designed to address, and what the future of the crypto space might look like, including layer two solutions and threats to distributed, permissionless blockchains. Abra recently announced full support of native Ethereum, which means that Abra users

]]>This Crypto Bites episode was recorded in late 2018 in New York City. The conversation between Abra founder and CEO Bill Barhydt and Ethereum founder Vitalik Buterin covers a lot of ground including the origins of the idea for Ethereum, some of the problems the that Ethereum was designed to address, and what the future of the crypto space might look like, including layer two solutions and threats to distributed, permissionless blockchains.

Abra recently announced full support of native Ethereum, which means that Abra users can now deposit and withdraw ether from any other crypto wallet that supports Ethereum.

The following is a transcript of the conversation.

Bill Barhydt

Hey everyone, Bill Barhydt here.

Welcome to another edition of Crypto Bites.

I’m really excited about this one.

We’ve got a really special guest with us, who we’ll come to in a second.

And it’s been a fantastic year for Abra, thank you so much to the community who supported us.

We’ve got hundreds of thousands of users now, our community is growing every day.

We think that this really sets the stage for Abra to go deep within the Ethereum community, and you’ll see lots more announcements about our support for Ethereum-based contracts in the future, so I’m really excited about that.

I’m also super excited to have Vitalik Buterin with me, I guess you call yourself the founder of Ethereum?

Vitalik Buterin

Mm-hmm.

Barhydt

So I’m curious, first of all, thank you so much for joining us, I know the community’s gonna be super excited about having you join us.

So how did you describe your role within the Ethereum project or community today?

What is your role?

Buterin

So, my role when I started was basically that I was the one who came up with the initial idea.

I wrote the white paper, I kind of sent it out to people, brought together the community initially.

Right now, I probably focus the most on, first of all, on research problems.

So we are…At some point fairly soon going to release an upgrade to Ethereum called Serenity, which will include the proof-of-stake consensus algorithm, so this is a much more efficient form of consensus than the existing proof-of-work chain.

Barhydt

Yeah, we’ll come back to that.

Buterin

Together with sharding, which is this very large, maybe 1,000X scalability improvement.

I spend a lot of my time kind of figuring out the details of that upgrade, kind of figuring out what the protocol will look like, and things like that.

I also end up participating in different other strands of research, so things around the cryptography economics, different Ethereum applications.

I do also just go around the world and kind of…Talking to different people in the Ethereum community, and different people in larger and more mainstream circles that are interested in figuring out how to use Ethereum.

Barhydt

Yeah, are you having fun?

Buterin

Yeah, yeah, this year has been great.

Barhydt

Cool, I wanna talk about that in a minute.

I think just maybe take a step back, and I think a lot of our traditional investors inside of Abra don’t know a lot about you, so maybe if you don’t mind, just introduce yourself, where you come from, how you got into this in the first place, how you went from writing about Bitcoin to even creating Ethereum.

Buterin

Sure, so I was born in Russia in 1994, six years later moved to Canada. Eleven years after that, heard about Bitcoin for the first time.

I first heard about it from my dad, then I saw it again on the internet.

I kind of thought, okay, this is an interesting idea, maybe I should kind of poke into it more.

I started poking through the Bitcoin forums.

I eventually found the guy who would pay me in Bitcoin to write articles for a blog that he was working on.

From there, I became the co-founder of Bitcoin Magazine, which was this kind of website and print publication.

Barhydt

I remember, yeah.

Buterin

That was around back during the Bitcoin early days.

Then I spent about two years working on that and kind of getting deeper and deeper into the Bitcoin community, and understanding how it works on a technical level, understanding the social and economic ideas.

Barhydt

So you’re literally one of the few people who’s probably spent close to half his life in the cryptocurrency world.

What are you, you’re probably like 24?

Buterin

Yeah 24, but eight divided by 24 is 1/3, it’s not quite 1/2.

Barhydt

Wow, but even that is incredible, right?

Buterin

I guess.

Barhydt

Well, for me it is, because when you were born, I was at Netscape, right?

So the idea that you could even spend 1/3 of your life specifically, not in cryptography, because I’ve been doing that as well since I was 19, but the idea that you could work on cryptocurrencies for 1/3 of your life is incredible to me.

What was the first programming language that you learned?

Buterin

I remember when I was very young,

I would play around with Excel spreadsheets, which is kind of a programming language.

Then when I was a bit older, I would do Logo and C++.

The main thing I would program is programming video games that I would then play myself until I got bored, then I would program more.

Barhydt

Right, cool, very cool.

So let’s talk about Bitcoin and the segue to Ethereum.

What attracted you to Bitcoin in the first place?

Buterin

It just seemed like something that gathered together all of the interests that I already have at the same time in one package.

There was the math and computer science, the programming, the cryptography.

The community back then was very interested in talking about different political and social ideas,

and libertarianism was very strong, but then there were socialist and mutualist whatevers, and all of these different fun little tribes.

There was even the sort of politics and society section of the Bitcoin talk forum where people would just debate these ideas with each other.

Barhydt

Absolutely.

Buterin

So Bitcoin kind of had that, it had this kind of…Community with different ideas, and a technology that actually could actually have a big impact on the world.

It had the open-source software aspects to it, it had very interesting cryptography.

It seemed like almost a perfect storm for myself to get interested in.

Barhydt

Fantastic, and you had this idea that Bitcoin needed more of a Turing complete scripting component to it and that led to the idea for Ethereum?

Is that a fair statement?

Buterin

So what actually happened was that back in maybe October 2013, I spent some time working on projects like colored coins and Mastercoin, so these were the existing layer twos that were trying to kind of extend Bitcoin with more advanced functionality, and at one point I realized that, hey, you could replace these five features with one other feature by just basically having a programming language instead of these five specific different transaction types. And it kind of came over time.

The first thing I did was I made a proposal to Mastercoin that would replace basically five of the transaction types they have with a programming language designed to express financial contracts between two parties. So you could do binary options, contracts for different bets—

Barhydt

Sure.

Buterin

Pretty much anything in that category with one single type of thing.

Barhydt

Let’s take a step back for a second.

What was the attraction to you for this idea of having contracts, executable contracts at all, inside of a cryptocurrency-based model?

Buterin

Initially, for me, it was like, hey, they’re doing this thing, they’re trying to make it possible to do more stuff, that seems cool, but I know how to do more, how to make it possible to do more stuff with a protocol which is ten times simpler, which is instead of basically having a Swiss Army knife with 100 different types of features, you would just have a programming language, so then you could kind of build whatever you want on top.

Barhydt

Did you have a vision where you said, oh my god, the world needs this type of contract?

Or was it more for you a holistic problem?

Buterin

It kind of came over time, I started with these two-party financial contracts, then I kind of kept on mulling the idea over, and at one point I sent it to the Mastercoin people, and they said, yeah, that sounds cool, but maybe we’ll get to it in a year on our own map.

And I was like, wait, a year? But don’t you see this is literally the most important thing out there?

I basically just decided to start working on it myself.

So free of the constraints of having to iterate an existing system, I kept on thinking,

and eventually, it took me a couple of weeks to figure out how to expand the model from

just two-party contracts o these computer programs that talk to each other and can do pretty much whatever they want, but once I made that one kind of leap, suddenly everything made sense, that you could just do everything with contracts.

Barhydt

Yep, yep, okay so now let’s talk about that.

So we have a lot of non-technical users of the Abra app, people who are watching this who hold Ethereum, but don’t really understand the deep difference between ether and bitcoin.

So can you explain in kind of non-technical terms to the layman, what is the difference between bitcoin and ether?

Buterin

Sure, so Bitcoin is kind of a special purpose blockchain.

It’s good at basically the one thing that it does, which is storing and processing the transfer of Bitcoin balances.

Ethereum is a much more general purpose platform, so Ethereum contains a built-in cryptocurrency called ETH which you can use as a currency, but then it also has these smart contracts which you can use to implement a much broader variety of other kinds of blockchain applications, which could include financial contracts, it could include decentralized domain name systems, it could include identity systems or reputation and so forth, and then there’s this big long list of blockchain stuff that people get excited about, and basically any of it is doable on Ethereum.

Barhydt

And how much of that, of what you just said, was the original vision, versus how much of that

has kind of evolved over the last five years?

Buterin

I would say a lot…When I figured out how to move from just two-party contracts to this broader model of contracts that can do anything, it became very clear that this was a much more general tool than we realized we could do.

And at that point, other people in the community started coming up with more and more applications, like there was some people thinking up decentralized file storage, there were…

People thinking up different ways that they could make their own tokens.

I came up with some ideas around how to do things like decentralized oracles and so forth, and other people took those ideas and started running with them.

Part of that is where Augur came from for example.

Barhydt

Right, a prediction market.

Buterin

Yeah, well prediction markets are this other idea that just totally came from the outside, but the platform is general purpose, so even though I’ve never heard of prediction markets when the platform was designed for the first time, you could still do them.

Barhydt

That’s super cool.

So what’s…I wanna talk about some of the applications that you were alluding to in just a second, but what’s the craziest application of Ethereum that you’ve come across lately?

Like, I can’t even believe that somebody came up with this. Is there something that comes to mind?

Buterin

I am definitely impressed by MakerDAO.

What MakerDAO basically is, is it’s a smart contract system that issues a currency which is pegged in value to the dollar, but it’s not dependent at all on any outside banking systems or anything like that.

Basically, there is an even larger pool of ETH that the contract maintains, and the contract basically maintains this kind of peg where…It has this data feed that feeds in the price of ETH to U.S. dollars from the outside, and depending on what that price is, that’s the amount of ETH that you can recover from one DAI.

What that basically means is that you get this cryptocurrency which is a sort of pure cryptocurrency in the sense that it doesn’t depend on centralized infrastructure, but it has a stable value.

Theoretically, you could extend this kind of model to not just U.S. dollars, like you could have exposure to arbitrary assets, you could have exposure to CPIs, you could have exposure to real estate indices.

But the interesting thing about it, the idea is something we knew about for a couple of years, but they actually did it, and it actually works, and it’s worked for almost a year.

It’s gonna be a year in maybe even a week or so.

The price has just actually stayed at a dollar all the way through.

Barhydt

That’s awesome, and actually there are a lot of similarities between what MakerDAO is doing and the Abra platform using Bitcoin, because we basically use multi-sig Bitcoin contracts to create our stable assets, the dollar, even the ETH up until now,was this stable asset model using Bitcoin, although now it’s a native ether wallet of course.

So let’s talk about some of those applications.

Obviously, this has been a crazy year from kind of a venture capital, ICO perspective, right?

So I’m curious, what is your perspective on what’s happened in the past year in this crazy ERC-20 market, and is it…Is that a viable, interesting application of Ethereum going forward, or do you think that that’s kind of going to die?

Buterin

I think there’s definitely going to be even more ERC-20s to keep on getting issued in the future. I do think that the age of multi-hundred-million-dollar ICOs has passed, at least for quite some time, and honestly, I’m very relieved about that.

There’s definitely a lot of different use cases for issuing tokens, like one, you could use them to represent assets, so if things like these different stablecoin projects, you could use them for assets inside of video games, you could use ERC-721s, Non-Fungible Tokens, to represent digital collectibles, you could use ERC-20s to represent tokens which have value insideof some applications.

I do think that the AppCoin thing has been over-hyped and over-used, but there definitely are some areas where I think it’s totally legit.

Barhydt

So we’ll come back to the 721, the collectible model in a second, I think that’s a really interesting topic as well.

On the ERC-20 topic, what do you think about just traditional securities enabled via the ERC-20 model, not just issuing new tokens to fund a company, but taking existing stocks, and making them available via ERC-20, is that something that you foresee happening en masse in the future?

Buterin

Yeah, I think that’s a totally cool idea.

Barhydt

Are there startups that you’re aware of that are actually trying to do that now?

Buterin

For stocks, I don’t know.

The challenge is that you want these stocks to be issued natively, like you actually want the record on the Ethereum blockchain to be the authoritative thing that tells the court who actually has the legal rights, and that involves legal engineering more than anything else.

I know there was this company based in Singapore called Autonomous that was trying to do company share management on Ethereum, and part of the long-term vision for that would be that you could just have stocks that get traded on the blockchain, but then that particular company shut down.

Barhydt

When you think about mainstream adoption of decentralized applications or any application that takes advantage of Ethereum, what do you think it’s gonna take for true mainstream adoption by the average consumer, or institutional investor, are they going to know that they’re using Ethereum?

Is it gonna be relegated to the background?

And how much of that is dependent upon your development platform community, versus the actual app developers?

Buterin

I would say in some cases yes, in some cases no. There are definitely ways that applications can benefit from Ethereum without exposing the user to any blockchain bits, but then there are also other benefits that you really can only get by making the blockchain parts closer to the user side.

As far as the big problems, my top three at this point are probably scalability, privacy, and usability. So scalability, Ethereum blockchain right now can process 15 transactions a second, really we need like 100,000.

Barhydt

Yeah.

Buterin

Privacy, every single thing you do right now is totally public to everyone, and that doesn’t do

for a whole bunch of use cases, so this is part of why we’re working on some fancy cryptographic technology, like zkSNARKs, to try to solve that.

Usability is a super big challenge.

A lot of blockchain applications are just very poor on the usability side, they have a lot of hiccups, and like, oh why’d this suddenly just totally not work, why did this take 10 minutes longer than I expected. The other big challenge that I care about is usability of security, so coming up with easy-to-use ways for people to store their private keys that don’t become vulnerable to someone losing everything because they either lost their private key, or their private key got stolen.

And there are some interesting solutions that are coming out to that, but it’ll still take a couple of years for all of these different strands to get somewhere.

Barhydt

Yeah, we struggle with the last one a lot.

We force our users to actually write down their back-up phrase to recreate the wallets.

And we have obviously near 100 percent compliance with that because we don’t give the user a choice, but it is not a fun, friendly process for our users.

So let’s kinda work backwards on what you were talking about earlier.

Actually let’s start from the top, so you mentioned scalability, that it’s gonna take probably 100,000 transactions a second at some point to really make Ethereum useful.

Where are we now in terms of getting from 15 transactions a second to 100,000 transactions a second in the Ethereum network?

Buterin

There’s kind of two major kinds of strategies that we’re working on for scalability.

One is layer one scaling, and the other is layer two scaling. So layer one scaling basically means improving the blockchain protocol itself to allow it to process a much larger set of transactions.

And the main bottleneck with blockchains right now is basically every user has to download the whole blockchain which basically means the blockchain can’t hold more transactions than one guy’s computer can store.

Our solution to this, called sharding, basically means that you split up the different transactions to randomly selected different groups of computers.

This basically means that the blockchain can process way more things than one single computer can hold.

That could increase scalability by maybe a factor of 1,000 or so, but potentially even more much later down the road.

The other kind of scaling that we are working on is Layer two scaling, which basically means designing applications in such a way that not everything that happens actually goes on the blockchain.

So basically instead of going to the blockchain every single time any user does anything, you perform most of your operations off-chain, using just cryptographically signed messages, and you only need to put data onto the chain when there actually is some kind of dispute.

So there are two major classes of systems that we’re working on in this regard.

One is called estate channels, and there’s a bunch of teams working on this. There’s a team called L4 in Toronto that’s done some really good work.

And another project is Plasma. And there’s a lot of work that’s been done on that, OmiseGO is this decentralized exchange that’s building on Plasma. There’s more and more of these projects, and there’s…

One of our researchers, Karl Floersch, has been working on an implementation of a reasonably complete Plasma Prime specification, which is the latest version of Plasma which has some really cool features in terms of increasing scalability and reducing the amount of data you have to store.

Barhydt

So a question on the on-chain scaling. So the Bitcoin Core world, for example, beyond SegWit, has really relegated scaling to layer two, which means off-chain scaling.

You obviously have a very different approach for Ethereum. Do you think that the approach that the Bitcoin Core community is taking makes sense for Bitcoin?

Or should they have the same perspective as the Ethereum project, in your opinion?

Buterin

If Bitcoin wishes to just be a store of value, then realistically it’s probably fine, though I think they should switch to proof of stake.

If they want to actually be a currency that people use for transactions, then I do think base what you’re scaling and also kind of speeding up the blockchain, reducing block times at the base layer, is also something which is very important.

There are serious limits to what you can do at layer two. There are limits to the usability of layer two, and there’s a tax on layer two, and also the other thing to keep in mind is that the scalability of gains from layer one enhancements and using layer two are multiplicative, so if layer one can be made to be 1,000 times more scalable, that’s also 1,000 times increase in the amount of transactions per second that you can push to a layer two thing safely.

Barhydt

But I also think that there are legal implications with layer two, because you get into money service business, and e-money regulation there, that I think a lot of the developers who don’t come from the legal world don’t fully understand.

Buterin

Yeah, absolutely.

One of the benefits of layer one things, in general, is that they literally do not depend on operators, they don’t depend on infrastructure, they just work directly on-chain.

And that basically, first of all, reduces legal risk for a lot of people, because you just need much fewer entities, and possibly no entities that even can be classified as operators.

Also, even in the absence of legal issues, it makes the whole thing more robust, because you don’t have to wait for these operators to start existing, to count on them to exist, to count on them to not coalesce into one single one because of network effects, and then charge monopolistic transaction fees, and all of these issues.

Barhydt

So let’s segue now into the privacy issues you mentioned.

How do you personally think about privacy requirements for smart contracts and the Ethereum model, and are there legal implications of your perspective that need to be taken into account, or is it all about doing the right thing for the protocol, and the legal stuff will work itself out over time?

Buterin

So first of all, I think it’s important to keep in mind that in the Ethereum context, Ethereum is a general purpose Turing complete blockchain, and so what that means is that any of these privacy-preserving protocols just can’t be done at layer two.

So we as designers of layer one don’t technically even need to do anything for it to make it possible for these layer two zero-knowledge payment protocols to actually work.

In some sense, what that means is that as long as there are people who care about privacy anywhere in the ecosystem and keep pushing it forward, it will happen.

And it also means that at layer one, we don’t really need to make choices of, do we like ring signatures, or zero-knowledge proofs, or confidential transactions, or Rabin signatures, or whatever fancy cryptographic buzzword of the week.

Barhydt

Sure.

Buterin

And we can just have a programming language, and other people can experiment with all of the designs.

From a legal point of view, I know there definitely are regulators in different places that are more concerned about the kind of zero-knowledge coins than about tokens where all of the transfers are put onto the blockchain in plain text.

It is something that… The kind of possibility of these technologies is something that just is going to happen over the next couple of years, and I do expect that for some classes of tokens, especially the classes of tokens that are closer to having more dependence on kind of traditional institutions, so this would be security tokens, like asset-backed stablecoins and so forth.

Regulators may end up demanding that they set up their privacy in some way that allows the regulators to see different parts of transactions, and that’s also something that’s kind of inevitable.

Barhydt

But this idea that… In the Bitcoin world this is a problem as well, right?

We talk about the fungibility of a token, meaning that if I have unspent output for Bitcoin, or for ETH, that basically traces back six steps to a public address that belonged to a drug dealer that was arrested, that somehow I am culpable in those transactions, because I’m still using that token.

Which by the way, is a problem with paper money, because if you look at the average paper money, it’s got traces of all kinds of drugs on it.

It’s actually disgusting, right?

So is it the protocol developers, or is it the Ethereum Project’s responsibility to deal with that fungibility issue, so that becomes a non-issue?

Buterin

I feel like our design philosophy for the Ethereum protocol is layer one must be strong, but layer two is ultimately the more innovative, and so we don’t need to explicitly make all ether transfers privacy-preserving or whatever at layer one, and that honestly can’t even work, because Ethereum contracts need to use ETH, and Ethereum contracts can’t even hold secret keys, so there’s no way to make that kind of privacy-preserving and what does that even mean?

So the thing that you can do of course is all of this different layer two innovation.

If…I know in general, like in common law, there is this kind of legal principle that fungibility of currency is sort of enshrined into law, because for normal assets, like for example there’s this nemo dat quod non habet principle, which is basically if you steal a bike, and then you sell me a bike, and then I give the bike to Carl, then the original owner can totally just go to Carl and say hey, that’s still my bike, give it back to me, even though Carl himself technically did nothing wrong.

But with currency, that’s kind of explicitly overwritten in the law, so it’s explicitly designed to treat every $10-bill as being identical to every other $10-bill.

In the case of cryptocurrency… I don’t think there has been a very specific case about this, but I know they are classifying it as property, which does mean there’s some risk that they’ll try to treat specific tokens differently depending on where they seem to come from.

Privacy preservation is definitely one way to make it less feasible to do things like that, which I think is definitely a gain for the usability of the platform as a whole.

Barhydt

So that’s an interesting segue into this idea of governance, right?

I mean last year, we went through this whole SegWit2x debate in the Bitcoin world, and obviously, you guys went through the proof of stake and Plasma debates as well in the Ethereum world, how do you think about governance?

First of all, what does the word governance mean to you, and how do you think it should apply to a decentralized protocol like Ethereum?

Buterin

So blockchains are interesting, because they are this fundamentally new class of thing, whether an organism, meme, whatever word you wanna use, they’re kind of like corporations, but also not quite like corporations.

They’re kind of like countries, they’re also not quite like countries.

They’re kind of like open-source projects, but not quite like them.

They’re kind of like religions, but not quite like them.

They combine elements of all these things, and add some new ideas and elements of their own.

The kind of properties that matter I think with blockchains are that they have this property of open-source software that ultimately the value of the thing is entirely what people assign to it.

At the end of the day, if you want, you can fork.

But compared to open-source software, I think there are also stronger disincentives against forking, and if forking is infinitely difficult, then you get back to the governance of things like corporations, right?

I think blockchains are sort of in the middle between those two.

I view governance as a coordination process.

So the idea is basically that all of the users in a blockchain ecosystem are playing this game where they keep on deciding every day basically what software they’re running.

So am I running Geth, am I running Parity, am I running Bitcoin ABC, am I running Bitcoin SV, something else, and… The one property that this game has is that you benefit from making the same move as many other people are making.

If I run a version of the Ethereum client that issues an extra 20 million units of ether to me, it might seem like a benefit ’cause I get 20 million ether, but I lose because really nobody else values that ether, and I am just going to get forked off of everyone else’s chain.

Because governance is this game where everyone benefits from making moves in concert, there’s a huge number of different equilibria that can arise inside of this game.

You could have the equilibrium where everyone runs the same software forever, you could have the equilibrium where everyone runs the software that I tell them to run, and I say something on Twitter that points to a new version, and that’s the version everyone downloads, you could imagine an equilibrium where there’s some group of core developers, you could imagine miners having a hash-war to vote.

Each of these equilibria are sticky, right?

Once the system falls into one of these equilibria, you will have the expectation that it is this way, then every single individual has an incentive to act in that way, because they benefit from being in the same universe as everyone else.

Barhydt

So ideally, I guess what you’re saying to some degree is you’re aligning incentives if you do governance correctly in the Ethereum world?

Buterin

Basically, governance is this… It is the question of what specific equilibrium should we be in right now, and within one of these equilibria, if you want to cause some change to happen, or prevent some change from happening, then how do you do that?

Barhydt

So let’s talk about governance and decentralization.

So to me, the litmus test to have a decentralized protocol on the internet is probably two things in my mind.

Maybe you agree or disagree.

One is, is there a central off-switch?

And two, can I stop the developers from actually contributing to this decentralized thing that has no central off-switch?

So I think about BitTorrent as the first project that passed the litmus test for me, where you couldn’t really stop either.

The governments tried, right?

Do you think that we’ve achieved that with Bitcoin and Ethereum, where there’s no central off-switch that would allow you to really shut it off, and that you couldn’t really stop the developers from contributing if governments didn’t like what they were doing?

Buterin

Yeah, actually I’m not worried about the blockchain being shut off from a development side, because first of all, there are lots of people running nodes, and even if the developers all go poof in a puff of smoke, then people can just keep running the same client version forever.

Barhydt

Sure, but with the bugs that they had before.

Buterin

Yes, and then if bugs come up, there could be new developers that would pop in, and it would take longer to fix, but it would still get fixed.

Second, in Ethereum we’ve taken really great care to ensure that there are multiple implementations of the protocol that people actively use, so in Ethereum 1.0, we have Geth, the go version, and Parity, which is this independently developed version in Rust.

And there are others, but people use them less, but people could start using them more.

For Serenity, so this is the upgrade that adds in proof of stake and sharding, that’s gone up to something like eight implementations, and there’s eight different companies that are working on implementations, one in Python, one in Rust, one or two in Java, and a couple of others, one in Nim.

That basically means that even if one development team goes down, the others can keep going.

I think shutting down is not the only risk you need to be worried about.

The other risk you need to be worried about is capture.

Barhydt

Define capture.

Buterin

So basically, can a small group of actors gain enough power inside the decision-making process to ensure that things go their way? And especially if their way might not be aligned with the way that the community of the blockchain actually wants.

Barhydt

Or a simple attack or something similar.

Buterin

Well, the exact kind of attack depends on what your exact mechanism is.

So for example, if you have a community where the religion is that 51% hash power decides, then you can just totally break and capture it by getting 51% of the hash power.

If you have something where some small group of developers decide, then you can… Either be one of those developers, and kind of get a cabal together, or even just create an ideological orthodoxy that this is the way to do things, or you could try to join this group over time, you could even try to hire them as a company, or you could try to influence them in a bunch of ways.

Barhydt

But a 51% attack, at least to the usefulness of a network for Abra, is almost the same thing as having an off-switch, because at that point, the network is no longer useful.

Buterin

There are different kinds of 51% attacks. So for example, you can do a 51% attack that just makes the blockchain break, but I can also do a 51% attack that censors all transactions, except for those transactions where the transaction fee is at least $100.

And if I do the second one, then that’s something that makes the blockchain still kind of useful, and maybe people will just keep on paying the $100, and it’ll be super profitable for me.

Barhydt

Right, fascinating.

So are you convinced that we’ve reached the point where either a 51% attack, or just some kind of government collusion to shut off the networks is just no longer possible? Specifically for Ethereum.

Buterin

I think if governments collude to try to bring the network down, they could probably do it, and developers would have to actively fight back and keep trying to make different network protocols and so forth, and that’s something that would just kind of keep on happening.

I mean, fight off government attacks without active developers, I think realistically we’re totally not there yet, and that’ll probably take much longer.

Barhydt

Right, right, right.

Probably another podcast or video session, fascinating topic, I love that topic.

I think that the libertarian in me wants a fully decentralized network, but I also realize that we’re getting there in very logical steps that also have to safeguard the value of what people are using the network for in the first place along the way.

So this has been kind of a heavy conversation, maybe we can close it out by lightening it up a bit.

So I’m curious, do you have hobbies outside of Ethereum?

Do you read a lot?

Buterin

Yeah, I definitely do read.

I try reading books during those times when I’m either traveling or someplace where I can’t be productive on something else.

Barhydt

What do you enjoy reading?

Buterin

Right now I’m going through Jane Jacobs’s The Death and Life of Great American Cities.

Barhydt

Yeah, so you just like to stay with the heavy stuff, huh?

Buterin

Yeah, I guess.

I definitely try mixing my entertainment with learning or keeping up my German, or weird things like that.

The lighter thing I do is probably going on walks.

Barhydt

You’re a hiker?

Buterin

Yeah.

Barhydt

Right on.

Well, we’ll have to pick up this conversation over a hike.

I spend a lot of time in the mountains, so I’d enjoy that.

So look, this has been awesome.

I could talk to you literally all day about this stuff.

But I think we’ll stop there.

This has been like I said, fantastic.

Thank you so much for the time, and for everything that you do for the community, and obviously, you’re representative of a lot of awesome developers, and we are very grateful to the entire Ethereum development community for everything they do.

We’re really excited about going deep within not only supporting ETH, but the Ethereum platform at Abra.

We didn’t really get to dig in too much on the CFD swap model, we should do another conversation with that, I think we could probably spend an hour just talking about financial products, which I think for a core part of our audience would be interesting.